Remarks for Alejandro Granado

CITGO Petroleum Corporation Chairman, President and CEO Alejandro Granado presented
a this speech at the Changes in the Andes: Realities, Challenges and Opportunities for
Inter-American Relations Conference on Feb. 13, 2008 at Brown University in Providence,
R.I.
It is an honor for me to be a part of a conference focusing on the encouraging political and socioeconomic changes taking place in South America’s Andean region, and sharing this forum with
our brothers and sisters from Bolivia, Ecuador and, naturally, Venezuela.
On behalf of CITGO Petroleum Corporation and our parent company, Petróleos de Venezuela,
S.A., (PDVSA), the national oil company of the Bolivarian Republic of Venezuela, I thank Brown
University for this opportunity and thank you all for being here this afternoon.
I will be discussing the work that we do at CITGO everyday, and how it fits within the broader
international strategy of our parent company.
By reviewing some key projects and policies advanced by our parent company, PDVSA, in recent
years, we will be gaining insight on the contributions Venezuela is making to socio-economic
development and stability in the Andean region and the entire Western Hemisphere.
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PDVSA is a vertically-integrated, global company, sitting on a base of more than 300 billion
barrels of crude oil reserves.
This figure includes more than 230 billion barrels of reserves from the Orinoco Oil Belt. These
reserves are currently being certified by independent third parties, in a process scheduled for
completion by the end of 2008.
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When we add the Orinoco Oil Belt reserves, Venezuela shifts to the number-one position in the
world, with reserves larger than those of Saudi Arabia.
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By the way, oil tankers traveling from the Middle East and other parts of the world take up to 45
days to reach U.S. coasts while a tanker coming from Venezuela reaches the U.S. in only six
days.
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Through ships and pipelines, that crude is connected to the downstream portion of our system
here in the U.S., where CITGO plays a key role.
CITGO’s refineries, terminals and marketing network enable the products made from Venezuelan
crude to reach the final U.S. consumer.
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Therefore, PDVSA has the largest reserves of low-cost, heavy crude in the world while CITGO
has a refining network that processes the heaviest, lowest-cost crudes of any refiner in the U.S.
The combination provides a secure source of finished products to the U.S. market.
But getting to where we are today has not been easy because of a number of factors. We have
worked under enormous geopolitical tensions due to the interest of the big industrialized powers
in unlimited access to and control of world oil reserves.
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Let us take a look at what this means in the Western Hemisphere: In the year 2007, the U.S. had
18 percent of the oil reserves in the hemisphere, 33 percent of its production and 69 percent
consumption.
This suggests that in a few years, with the current pattern of production and consumption, oil
reserves in this country will deplete or will be seriously compromised. This, with no doubt, will
lead to a severe crisis, highlighted by harsh competition for access to massive oil sources.
So, you can imagine the tremendous importance of the Orinoco Oil Belt reserves to Venezuela,
and the world at large.
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I would like to review now a chapter of Venezuelan recent history to explain the challenges that
we have encountered in the Orinoco Oil Belt, illustrated by two particular cases – the
development and marketing of Orimulsion and the association agreements for the exploitation of
the area’s reserves.
These two cases were schemes of unjust appropriation of these Venezuelan natural resources by
transnational interests.
People in the 80s and 90s with strong, biased opinions of the Orinoco Belt attempted to conclude
what was in the Orinoco Oil Belt was not really oil but bitumen, and that it was not that valuable.
The “experts” went so far as to say that the resource was actually comparable to coal, which led
them to assign a very low cost estimate. Therefore, they were trying to exploit the Orinoco Belt
as if it were a coal mine and not what it really was – the biggest resource of oil on the planet.
What is Orimulsion? Orimulsion is a mixture of 70 percent Orinoco heavy crude, 30 percent
water and an emulsifier, basically developed to allow the heavy crude to be transported.
By 2004, Orimulsion was being marketed as an alternative to coal, imposing a price similar to that
of coal of some $3 per barrel. In reality, the heavy crude could be blended and/or upgraded and
marketed as oil, attracting a much higher benefit - of some $13 per barrel when mixed with light
oil.
We may ask ourselves: How was this possible if PDVSA was the designer of the project? Well,
remember that PDVSA was captured by transnational interests which had their executive
operators working on their behalf.
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And, also remember the sabotage of 2002 and how the Venezuelan Government and patriotic
workers rescued PDVSA.
So as a result, as any other company with a sound business sense would have done, especially a
state-owned company, the new PDVSA decided to dismantle the production and marketing of
Orimulsion.
Now I would like to offer you some details on another twisted scheme designed to seize the
Orinoco Oil Belt: the so called "strategic" association agreements.
There were four association agreements for upgrading heavy crude oil from the Orinoco Oil Belt
in the 90s and the early 2000s. We had several private foreign partners with the majority of the
stakes in those joint ventures that reached a production of 650,000 barrels per day with an
operating cost below $3 per barrel, producing upgraded crude oil that compares with WTI, and
nevertheless paying a meager 1 percent in royalties.
They were also supposed to be paying minimal taxes of 34 percent as if they were bakeries or
auto repair shops and not what they really were – oil companies. But using financial engineering
they even managed to avoid this obligation.
Moreover, they were extracting the crude without investing what they were committed to invest in
order to strengthen recovery rates. Thus, their extraction methods were only securing a seven
percent recovery rate. This means that for every 100 barrels in the reservoirs, 93 barrels were
being lost, possibly forever.
The costs of damage to the reservoirs are incalculable.
Additionally, they were covering areas much larger than those approved by the authorities.
In a nut shell, these companies were damaging the Orinoco Oil Belt under an abusive,
unacceptable business model that was contrary to the Venezuelan national interest.
For the sake of national sovereignty, it is absolutely clear that Venezuela had to put an end to this
situation as both a right and a duty.
The new conditions that have been established to develop the Orinoco Oil Belt, within a
transparent legal framework were accepted by all the private foreign oil partners, except
ConocoPhillips and Exxon-Mobil, which decided to take this case to arbitration in an
international court. As you know, Exxon-Mobil has also taken action beyond the established
arbitration process.
Additionally, the new conditions are attractive enough to maintain the interest of more than 10
foreign partners, including such companies as Statoil Hydro of Norway, Total of France, CNPC of
China, Chevron of the U.S., Lukoil of Russia, Enarsa of Argentina, BP of the United Kingdom,
and many others.
Efforts such as these show how difficult it can be for an oil producing country to reassert
sovereignty over its natural resources, while facing both external and internal challenges.
In addition to guarding the national interest, all these changes respond to a new vision where the
goal of running a business efficiently is enhanced by principles of solidarity and complementarity
in the context of regional integration mechanisms.
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Venezuela’s current regional energy integration efforts are being advanced through
PetroAmerica, a regional initiative which includes several other bodies under its umbrella:
PetroSur, PetroAndina and PetroCaribe.
These initiatives envisage the energy integration of the peoples of Latin America and the
Caribbean within the framework of the Bolivarian Alternative for the Americas (ALBA), with a
vision towards achieving a fair and democratic use of resources for the development of the
peoples of the region.
Now, I would like to focus on PetroCaribe, an initiative with which I worked very closely in the
past, in my role as president of PDV Caribe, the PDVSA subsidiary in charge of implementing
energy agreements in the region.
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This initiative is based upon the principles of equality among states, sovereignty, no foreign
interference in internal affairs, free determination of the peoples, and the right of each nation to
define its own economic, political and social system.
Due to asymmetries in consumption and to the world energy situation, which has contributed to
increased oil prices, the small Caribbean countries have faced many difficulties in accessing
energy resources. Did you know that the Caribbean countries had to pay more than $10 per
barrel as a premium over oil market prices? Venezuelan oil tankers passed so close
by their coasts to the Gulf ports and then other ships travel all the way back to sell them fuel and
other products at increased prices.
It is with the mission of supporting Venezuela’s neighboring countries that the Venezuelan
government created PetroCaribe. Now Venezuela sells fuels directly to them with favorable
financial agreements and also gives them support to balance their energy matrix.
Following the organization of joint ventures under this agreement, state agencies have taken
steps towards achieving stronger nations.
With the joint ventures, investments have been made in hydrocarbons and electricity.
Simultaneously, socio-economic development is being promoted as one of the fundamental hubs
of true, sustainable integration.
Unity means also reasserting people’s sovereignty. By developing joint ventures, PetroCaribe
contributes to establishing or strengthening each government’s energy sovereignty. Furthermore,
these companies are a vehicle for the transfer and exchange of knowledge and expertise in
management of the energy business.
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Additionally, the exchange of knowledge and expertise is not limited to the energy field. It is
mirrored also in the conceptualization and design of socio-economic projects. Venezuela has had
a great deal of experience over the last few years in this area.
Infrastructure works in progress total $215 million. From an economic point of view, supply
financing exceeds $500 million in savings, that is, one percent of the gross domestic product of
recipient countries.
In addition, the ALBA Caribe Fund has yielded essential results. A total of 43 social welfare
projects have been backed for more than $90 million.
The results so far, and ongoing projects, give us cause for optimism about future achievements.
This demonstrates that energy integration is a key tool for achieving true socio-economic regional
development.
Finally, to come back to the United States, at CITGO here in Rhode Island, in Texas and
anywhere else where we have a presence, we work following the same principles of solidarity,
complementarity and fair trade with our customers, business partners and vendors promoted by
our parent company.
Under this vision, we dedicate significant efforts to improving the quality of life in the communities
we serve. Good examples of this include programs to promote health and education, and to help
develop small, minority-owned businesses, and last but not least, our flagship initiative, CITGOVenezuela’s Heating Oil Program, which is running for the third consecutive year. With an annual
investment of roughly $100 million, it is often referred to as the biggest corporate social
responsibility program ever undertaken by an oil company in this country.
Therefore, we are leading the way in the area of corporate social responsibility while continuing to
play a key role in strengthening a fair, reliable energy relationship between Venezuela and the
U.S. while also contributing to uniting the peoples of the region.
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Thank you.
End
CITGO, based in Houston, is a refiner, transporter and marketer of transportation fuels,
lubricants, petrochemicals, refined waxes, asphalt and other industrial products. The company is
owned by PDV America, Inc., an indirect wholly owned subsidiary of Petróleos de Venezuela,
S.A., the national oil company of the Bolivarian Republic of Venezuela.
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