Remarks for Alejandro Granado

19 Pages·2008·1.83 MB·English

CITGO Petroleum Corporation Chairman, President and CEO Alejandro Granado presented
this speech titled “New Era in Refining” at the Global Refining Strategies Summit on Sept.
10-11 in the Woodlands, Texas.

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I am honored to participate in this year’s Global Refining Strategies summit.

Allow me to begin by listing the topics that I will be discussing today:

I will start by introducing CITGO Petroleum Corporation and our parent company, Petroleos de
Venezuela (PDVSA,) to illustrate our strong position to meet today’s energy needs.

I will move on to discuss the global landscape of the refining industry, addressing such issues as
refinery utilization, investment and the availability of crude oil reserves.

I will then focus on the Western Hemisphere and the challenges and opportunities facing the
refining industry in this part of the world.

Then I will concentrate on the heavy crude oil reserves in Venezuela’s Orinoco Oil Belt and the
potential of this region that can redraw the world’s energy map.

To conclude, I will discuss how CITGO fits in PDVSA’s strategy to develop the Orinoco Oil Belt
reserves and meet the world’s ever expanding energy needs.

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Petroleos de Venezuela today is a vertically-integrated, global company which sits on a base of
over 300 billion barrels of conventional and Orinoco heavy crude oil reserves.

Through ships and pipelines, those reserves are connected to the downstream portion of the
system here in the United States, where CITGO plays a key role.

CITGO’s refineries, terminals and marketing network of more than 8,200 service stations enable
the products from Venezuelan reserves to reach the final U.S. consumer.

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Now, when we take a look at the global landscape for refining, one key fact jumps out: after
allowing for maintenance requirements, the existing refining capacity has reached it's effective
limit, be it in Europe, Asia or the United States, and we have been in this situation since the mid-
1980s.

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So, why is refining capacity so tight?

Well, in the United States, during the last 20 years our industry has spent a cumulative amount of
capital - above the amount required for maintenance - equivalent to the cost of 60 percent of
existing capacity.

But – all this investment has provided for an increase of only 11 percent in actual additional U.S.
refining capacity. Where has all this money gone? Well, as you may have guessed, the biggest
chunk has gone into meeting regulatory requirements.

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Not surprisingly, then, since our demand for refined products has grown by a third over this
period, the gap between U.S. refining capacity and product needs – which first appeared in 1986
- has grown ever since, resulting in an increasing dependence on imported products.

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Recent forecasts show that the need for additional refinery capacity is not limited to the U.S. This
graph shows that the need for additional capacity over the next ten years exceeds planned
expansions in every region of the world.

As you might expect, the corresponding gaps between additional demand and planned
expansions are the largest in Asia, the Middle East and the United States.

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As shown here, U.S. refining margins already reflect the need for additional capacity. And, as we
have shown, with a growing gap between the demand for additional products and planned
expansions worldwide, we expect refinery margins will continue at high levels for some time.

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Back to the U.S. Let's talk about what kind of capacity we need here.

This slide shows the availability of heavy crude oil reserves in the Western Hemisphere, in the
form of heavy crude oil from the Orinoco Oil Belt and the Canadian Tar Sands.

It shows that, during the next five years, we are going to have an additional two million barrels per
day of heavy crude production coming from these areas! That's a lot of new heavy crude
production coming into the market and investments in the type of refining capacity required to
process these crudes should be well rewarded.

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Now, let me give you a little more detail about our production in the Orinoco.

This map shows the Orinoco Oil Belt area, which is gigantic. It covers 21,351 square miles,
which is roughly the size of the state of West Virginia.

Today, only 0.3 percent of these vast reserves, or four billion barrels, have been developed.
Another 2.9 percent, 39 billion barrels, are part of current proven reserves.

And an additional 17 percent, 236 billion barrels, is in the process of being quantified.

Finally, 79 percent or 1,081 billion barrels remain as estimated reserves.

All of this adds to a total of 1,360 billion barrels of estimated reserves in the Orinoco Oil Belt.

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