Sanctions On Venezuela Could Benefit U.S. Refiners
Last week it was reported that the Trump Administration is considering significant sanctions on Venezuela. The threat of sanctions is in response to Venezuelan President Nicolas Maduro’s pledge to rewrite his country’s constitution on July 30. President Trump promised that if he followed through, the U.S. “will take strong and swift economic actions,” which could impact Venezuela’s oil exports to the U.S. A decision is expected as early as this week.
According to the most recent data from the Energy Information Administration (EIA), Venezuela presently exports 800,000 barrels per day (BPD) of oil to the U.S. Venezuelan imports rank third behind Canada and Saudi Arabia, but Venezuela is the top source of foreign oil for U.S. Gulf Coast refineries.
How might the loss of Venezuelan crude impact refiners in the U.S.? Let’s investigate.
EIA data indicate that 13 US refineries imported Venezuelan crude in 2016. Here is the breakdown of all 13, in order of descending amount of crude processed:
The Phillips 66 (NYSE: PSX) Refinery in Sweeny, Texas imported just over 46 million barrels of Venezuelan crude last year, the most of any US refinery in 2016. However, this was the only Phillips 66 refinery to use Venezuelan crude. Nevertheless, the capacity of this refinery is about 80 million barrels of crude per year, which means more than half of its crude slate last year was sourced from Venezuela. However, across the entire company, Venezuelan crude amounts to under 6% of Phillips 66’s total crude oil capacity for all its refineries.
Where things start to get interesting is with Citgo, which is owned by Venezuela’s state oil company, PDVSA. Citgo’s Lake Charles, Louisiana, refinery imported nearly 45 million barrels of Venezuelan crude in 2016. Another Citgo refinery in Corpus Christi, Texas imported 21.5 million barrels.
The two Citgo refineries consumed 26.6% of the oil imported from Venezuela, which makes it the most important destination for Venezuelan crude. Citgo is clearly in the worst position of any refiner, as it would need to source oil from elsewhere, and since Venezuela is strapped for cash, it might simply have to ramp down operations. That could benefit other U.S. refiners operating on the Gulf Coast.
Another refiner that could feel the sting of sanctions is Valero (NYSE: VLO), which processed Venezuelan crude in three of its refineries. The total amount processed was 53.8 million barrels (21.6% of Venezuelan imports), second only to Citgo. However, Valero processes more crude oil globally than any other independent petroleum refiner. According to Valero’s 2016 annual report, Venezuelan imports are equivalent to only about 6.5% of the crude Valero processed in 2016. So this may be more a perception issue than a serious risk to Valero’s business — although it could have a significant impact on specific Valero refineries.
PBF Energy (NYSE: PBF) imported a total of 22.4 million barrels of Venezuelan crude into two refineries it owns — Chalmette Refining in Louisiana and Delaware City Refining.
Shell (NYSE: RDS-A) imported 538,000 barrels of Venezuelan crude in its refinery in Martinez, California, and Motiva Enterprises, a 50–50 joint venture between Shell Oil Company and Saudi Refining, imported another 15 million barrels into its Port Arthur, Texas refinery.
Chevron (NYSE: CVX) used 32.5 million barrels of Venezuelan crude in its Pascagoula, Mississippi refinery, and Total (NYSE: TOT) used 9.7 million barrels in its Port Arthur refinery. Finally, Marathon Petroleum (NYSE: MPC) used 2.7 million barrels in its Garyville, Louisiana refinery.
The Trump Administration has said that action could be imposed this week on Venezuela and that all options are on the table. A full ban of Venezuelan crude would indeed impact refiners, but some are more exposed than others. Citgo is at most risk of having to curtail operations in response to sanctions, which could benefit other refiners in the U.S.
We are watching these developments closely in The Energy Strategist. This week I provided updated advice for one refiner that has done well since being added to the portfolio last fall, and I am awaiting the decision on sanctions before providing guidance on others.