Hovensa article

My brother Tom copied and pasted this to me in an email. He said he read it on Facebook. I asked him to source it and he is looking for the source now. I will post it when he lets me know.

Jen Cobb
Thanks John Farchette III
VENEZUELA
Virgin Islands refinery shutdown to hit Venezuela hard

This week’s announced shutdown of a major oil refinery in the Virgin
Islands could have major ramifications for the Venezuelan oil company,
PDVSA.
BY ANTONIO MARIA DELGADO
ADELGADO@ELNUEVOHERALD.COM
The announced shutdown of an oil refinery in the Virgin Islands will
hit hard the state-run Petróleos de Venezuela, S.A. (PDVSA), a company
that loses a major customer for its hard-to-place heavy crude and a
major supplier of components for the gasoline consumed in the country,
analysts said.
The experts added that the closing of the refinery — one of the
world’s 10 largest — could also impact the cash flow of the
state-owned company, as the complex, where PDVSA has a 50 percent
share, is one of the clients that best pays for Venezuelan crude.
“It’s a very important customer for Venezuela,” said former state oil
company manager Horacio Medina. “It is one of the places where they
were sending large amounts [of crude] every month.”
The refinery, operated by the joint venture Hovensa has the capacity
to process 495,000 barrels a day, 248,000 of which are supplied by
PDVSA.
Hovensa, which belongs to PDVSA and the U.S. company Hess Corp.,
announced this week it will close the refinery in a month after
accumulating losses totaling $1.3 billion in the last three years.
Hovensa said the company had lost its profitability due to the global
economic downturn and strong competition from a number of new
facilities built in emerging markets.
Jorge Piñón, an oil market analyst, said in Miami that the St. Croix
refinery also faced difficulties in competing with U.S. refineries
because it uses the oil itself as fuel for its facilities.
“U.S. refineries use natural gas, which is selling at one of the
lowest prices in its history,” Piñón said.
So the closure makes sense for Hess, a company that was bleeding from
the sustained losses.
But the situation is different for PDVSA, said analysts, describing
the shutdown of the refinery as a strategic mistake.
“If I see myself only as a refiner, then obviously the decision is
correct; the refinery has to be closed. But if I see myself as a
producer, you’re depriving me of 300,000 barrels of production that
now I have to place somewhere else,” said Juan Fernández, former PDVSA
planning manager.
The problem is that the heavy Venezuelan crude is difficult to place
in a global network of refineries designed primarily to process light
crude. For Venezuela, it would have been more convenient to reach a
financial settlement with the refinery so it could stop operating at a
deficit.
The cost of such an arrangement, which could be below $4 a barrel, a
small fraction of the more than the $100 per barrel it currently
charges, would be far below the cost of losing access to a market that
generated revenues of over $9 billion a year.
It was the difficulties in placing its heavy and extra-heavy crude oil
in international markets that led PDVSA to invest aggressively in the
refining industry, buying stakes in refineries and modifying them so
they could process the thick Venezuelan oil.
But that strategy, which had provided Venezuelan industry with an
enviable vertical integration, was abandoned during the presidency of
Hugo Chávez.
“The Venezuelan government has been destroying its refining capacity
abroad. It had about 2 million barrels, with the sales of the
refineries it owned in Europe and the U.S., and now comes Hovensa,
which, along with Citgo, was one of the few customers that pays it
correctly,” said Fernández.
The rest of Venezuela’s customers, like China, Cuba and other ALBA
countries, receive oil under economic terms that are unfavorable for
the nation, he said.
And the shutdown also could cause problems for the supply of gasoline
in the country, because the Virgin Islands refinery had begun to
supply components used in the production of gasoline that were no
longer produced in Venezuela due to problems in domestic
installations.
The problems in the Venezuelan refining system continued during
November and December, according to local press reports that
highlighted the serious problems faced in the Venezuelan refineries El
Palito,