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The Truth behind Boycotting Citgo

January 15, 2007

Gerald posted news about Chávez’sunholy alliance” with Iran and as much as he is completely right and this new “alliance” should be condemned, let us discuss some facts about how some think they are hurting Chávez by boycotting CITGO.

Much has been going on in the blogosphere, religious and political organizations about boycotting CITGO. Since my entire family is Venezuelan and has always worked in the oil industry (PDVSA, which owns CITGO) and I work in the U.S. refining business as well, I thought it would be important to point out some facts about why boycotting oil companies simply doesn’t work and whether this is the Christian thing to do anyway.

Who doesn’t like Chávez?
First, let’s start by saying that most of us dislike Chávez very much. The extent to which we dislike him varies in degree. Some may not like him, because he called the U.S. President the “devil,” or simply because they have heard of his close alliances with Cuba or Iran. But we tend to forget that some of his strongest opponents are those who suffer directly by his populist social and economic domestic policies: the Venezuelans. I can speak to this, since I know the increasingly deteriorating economic conditions in which my family members and friends encounter themselves in. They live day by day in Venezuela and they speak of the strong discontent and disappointment of many with Chávez’s lack of diplomacy and egocentric attitude that do not help anyone. This growing frustration can be called to question, since Chávez was reelected this past December 3rd for another 6-year term. My friends keep saying that the election was a fraud, but at the same time, they acknowledge that the poorest could indeed be supporting him, because they are directly benefiting from his social programs, which are a sample of the most attention the poor have received in many decades. On the other hand, many of the poor are very disappointed as well, because they still see a rise in inflation, devaluation of the Bolívar, and increasing unemployment. In sum, it remains a mystery who are indeed Chávez’s supporters, but we can all remember “el golpe del 11 de abril” or the events of April 11th, 2002, when hundreds of people were shot to death as literally millions of Venezuelans were walking to the Capitol protesting against Chávez’s government and asking him to resign.

What happens when you don’t buy gas at Citgo stations?
First of all, gas stations are primarily owned by individuals and not by oil companies. Approximately 1-4% of branded gas stations are owned by the companies themselves, if that many, but why? Revenues from these facilities are minimal for oil companies to be worrying about paying the costs to maintain them. It’s just not practical and not necessary for big companies to own these businesses when individuals can very well take care of them. However, there is some sort of royalty that individuals have to pay to the company in order to keep a specific brand at their gas stations. When you compare the revenues proceeding from owning gas stations to those that oil companies have during the good times (when the oil is at over $50/bbl, not during the 80s when oil had crashed!) owning gas stations is simply not business-smart. That being said, the revenues, or lack thereof, from gas stations do not affect greatly oil company profits.

Are you buying CITGO gas at CITGO gas stations?
Not necessarily. In fact, you are not buying Shell gas at Shell gas stations either! How can this be? I mean by “CITGO gas” or “Shell gas” the “gas” which comes from a CITGO or Shell refinery, respectively. Yes, these huge facilities called refineries are the primary revenue for CITGO, in this case. Other integrated energy companies, such as ExxonMobil, ConocoPhillips, BP, Shell, ChevronTexaco, can get their revenues from their upstream operations (i.e. crude oil production) instead of their downstream operations (i.e. crude oil refining), but when refined product prices are adequate, refining margins can be high and hence, profits are high. Keep in mind that this is not always the case though as the oil industry in the 80s was very much struggling to make any profit due to low crude oil prices. Anyway, let’s say that you have two refineries in your area and one is CITGO and the other one is Shell. The CITGO refinery is capable of making all three grades of unleaded gasoline, whereas the Shell refinery can only make regular. To minimize transportation costs, which would ultimately translate in lower gasoline costs for you, usually the local refineries will provide gasoline and diesel to the local gas stations. Well, but you decide to boycott the CITGO station, because you read it on a blog, and go to the Exxon station to fill up your SUV with premium instead. Guess what! The gas you’re putting in your SUV is from the CITGO refinery and, therefore, CITGO is making money from it! Because remember, the hypothetical Shell refinery was not able to make premium gasoline. This scenario is actually true for the CITGO Lake Charles refinery in Louisiana. The only difference is that the Exxon gas you just purchased has additives that are specific to Exxon gas. Same goes for Chevron, Conoco, Phillips, Texaco, BP, or any other kind of branded gasoline.

This is how it works:
Crude oil is processed in refineries. At the refinery terminals, there are different vessels holding the different additives for branded gasoline. So yes, the CITGO refineries are going to have all these other additives added to the gasoline produced in their refineries. Once the respective gasoline brands have their additives, they are distributed locally to their respective gas stations.

How can the U.S. hurt Venezuela?

By boycotting Venezuelan oil. Is this going to happen anytime soon? Probably not; otherwise, the U.S. and foreign oil companies would lose billions of dollars and we would see a rippling effect with high prices at the gas pumps. This is why: Venezuelan oil is cheap, because it is so rich in sulfur. It is also heavy, and hence, hard to process. Many process modifications are required to process this kind of crude such as adequate (and expensive!) metallurgy, additional equipment, catalysts, etc. U.S. and foreign oil companies have invested billions of dollars in domestic U.S. refineries to adapt them to sour crude processing (i.e. Venezuelan, Canadian, and Mexican crude refining). By upgrading the hardware in their refineries to process these heavy crudes, the oil companies have wider margins of profit, because they buy cheaper heavy oil. So, of course they do not want to boycott Venezuelan crude, because to do so would mean in having these new facilities sitting there and corroding away while having to buy sweet crude oil that is much more expensive, which would result in low (or negative) margins… and perhaps you don’t want that either if you complained for $3.00/gal gas!

The right thing to do?
At the same time, let us not forget the Venezuelans and the American workforce here. These are also people with families. When we say we want to “hurt Chávez” we are saying that we also want to “hurt Venezuelans” and “hurt Americans” (who compose over 4,000 of CITGO’s workforce). There have to be other ways to keep Chávez under control, but not by hurting these people, who also happen to be family members and friends. Even though this boycott will not have much of an effect (if any at all) on Venezuelans or CITGO employees, I don’t agree with the intentions behind this boycott, since my dad provides for my family by earning his income honestly at CITGO as well as my college classmates and other heads of households. This is not even counting the thousands of Americans indirectly employed by CITGO at their refinery locations: construction workers, pipe fitters, welders, truck drivers, electricians, just to name a few.

If you want to, keep at it… but, good luck!
So, what are your odds of being successful at boycotting oil companies? They’re not very good if you keep driving around in your car, or heat up your house, or cook, or heat your water, or use electricity, or do anything that a normal person in the 21st century does.

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