(Energy Analytics Institute, Pietro D. Pitts, 9.Aug.2013) – Oil Outlook President Carl Larry spoke with Energy Analytics Institute in a brief interview from Houston, Texas.
What follows are excerpts from the brief interview.
EAI: Are US refiners benefiting from PDVSA’s refinery problems in Venezuela?
Larry: We have seen production in the US in the last year picking up and we are seeing a lot of refinery runs, which have lifted exports which are at a record high.
Because of gasoline usage that we have seen in Venezuela, it has created an opportunity for US Gulf Coast refineries to pick up the slack to really push out more exports.
Additionally, we see a lot of the US Gulf Coast refineries bringing in a lot of heavy and medium crudes from either Venezuela or Saudi Arabia. The focus has shifted from bringing in lighter sweets, which we have done historically, to bringing in more medium to heavy grades (heavier sour grades). Further, we are seeing more being pulled out of Cushing and down into now the Gulf Coast.
There is an abundance of light sweet because of the shale programs, whether Eagle Ford in Texas or Bakken, and we are seeing a lot of that get pushed to the East Coast and the Mid-West.
We have seen a desperate need for sours and heavies ever since 2004-2005 when the refineries in the Gulf Coast were switching their slates to a heavier grade because of the cost differences.
Now we are experiencing a situation where it is cheaper to bring in light sweet in but the refineries are now geared up to bring in medium to heavy. We are seeing a lot more production but because of that we are seeing more pressure on the heavier sour grades.
Exports are key here. The longer we can keep those refineries up and running, it’s a good thing for the US refining system but at end of the day it is all about global demand and not so much US demand.
EAI: Could PDVSA be at a point whereby it is ready to divest of its CITGO Corp. refining operations in the US?
Larry: Venezuela is facing the same issues as a refiner as Saudi Arabia. There is not this demand in the US for product anymore and definitely not crude, so like Saudi Arabia there is race to get to Asia and especially China and get in front of them and sign longer term deals. So, the longer Venezuela deals with the US and the up and down demand here, the more time they are losing with bigger customers.
I can see why they would want to strengthen those ties before someone else stepped in. I could see PDVSA wanting to exit the US since there is not
really a big need here anymore for refineries or crude for that matter.
The focus for PDVSA and Venezuela should be the up and coming countries that will be demanding more oil, probably China and maybe Japan as well.
EAI: What companies would you put on a short list as being interested in the CITGO refineries?
Larry: I think ExxonMobil is a name that will come to the forefront, but Chevron Corp. might be another one that might be looking to expand. With significant exposure in Latin America, the refineries could be a natural fit for Chevron if there is an opportunity to expand.
EAI: Do you see a market for PDVSA’s Caribbean refineries?
Larry: It all depends on global demand. The Caribbean refineries are looking for a lot more global demand to make their margins profitable. The US is no longer relying on the Caribbean to give it the product, the demand is now going in the opposite direction. So, PDVSA’s refineries and others in the Caribbean become more global macro-sensitive than they have been in the past.
PDVSA’s 100% controlled US subsidiary CITGO Corp. owns outright three refineries with combined processing capacity of 749,000 b/d. PDVSA also has a 50% interest in two additional refineries with a combined processing capacity of 679,000 b/d, according to PDVSA’s 2012 annual report.