7-11 SHOWS CITGO THE DOOR
by Richard R.
Loomis & Susan Salter
World
Energy Source, World Energy Monthly Review, Vol. 2, No. 7
October 6, 2006
Could it be that a major distributor of gasoline in the United States is willing to stand up and take notice of the recent "rant" at the United Nations by Venezuelan President Hugo Ch�vez and take some action? 7-Eleven made the announcement that it would end its 20-year relationship with CITGO, and then it went one step further. 7-Eleven-branded gasoline will be the company�s new offering, supplied by three U.S. companies with primarily American reserves. What this means to the consumer is that a previously unidentifiable product, gasoline, can now be traced to its origin. It seems if you want to send a message to Venezuela, support corporate America's stand and buy American, you will support 7-Eleven.
Insisting the change was "unrelated" to Ch�vez�s increasing bombast toward the United States, 7-Eleven announced that CITGO � the American subsidiary of Venezuela�s national oil company, PDVSA � will no longer supply gasoline to its 2,100 convenience-store outlets. Still, 7-Eleven used the opportunity to promote patriotism: "We sympathize with many Americans� concern over derogatory comments about our country and its leadership," the company said in a prepared statement. Honestly, with the American people still smarting from the comments of the Venezuelan president, this could not come at a better time. Americans will put up with just so much rhetoric, and even Democrats came out in opposition to Ch�vez�s statements.
Others have made this move as well. Corpus Christi-based Susser Petroleum, for example, has switched gasoline suppliers from CITGO Petroleum Corp. to Valero Energy Corp., a move that reflects Valero�s desire to spread its brand name and CITGO�s intent to back away from independent retailers. Valero will provide gasoline to more than 300 of Susser�s 324 convenience stores. The 11-year agreement with Valero makes it the number-one retail marketer in Texas, according to Lundberg Survey Inc., an independent market research company focusing on the domestic petroleum market. Susser is the largest gasoline retailer in Texas, and San Antonio-based Valero, which announced the agreement Thursday, is the nation's largest refiner.
However, 7-Eleven is by far the highest-profile company, and one cannot miss the symbolism of 7-Eleven taking a stand against the man and the country that have offended the honor of the United States. Never mind that 7-Eleven is Japanese owned; then again, the Japanese do understand honor and saving face. In addition, the deal makes good business sense for the company, and the creation of 7-Eleven-branded gasoline has been in discussion for some time.
CITGO had already announced major cutbacks here in the United States, claiming that supplying independent stores with CITGO-branded gasoline was bad business. These announcements came mid-July and included Texas, Oklahoma, Denver and other areas not directly serviced by a CITGO refinery.
Those cuts had included some 7-Eleven stores but certainly not all of them. The Dallas-based retail giant told the media that the move to end its 20-year relationship with CITGO had been in the works long before the Venezuelan president called U.S. President George W. Bush an alcoholic and the devil. However, for some time now, Ch�vez has repeatedly called on the global community not to cater to the United States, and rumors of PDVSA possibly selling CITGO began mid-year of 2005. Consistently, Ch�vez has been getting noisier.
Retailers of CITGO-branded gasoline likely made their decisions some time ago, but most have remained quiet, perhaps waiting for some leadership they could follow. In August Tim Rogers, president of Tower Energy group, one of the three gasoline suppliers to 7-Eleven, noted that several CITGO dealers in the Midwest and Southeast told the Oil Price Information Service that they blamed Ch�vez�s constant jabs at America and his friendliness with Cuba�s Fidel Castro and Iranian President Mahmoud Ahmadinejad for a recent 15 to 25 percent drop in gasoline sales. At the corporate level, 7-Eleven admits that its affiliation with CITGO was becoming "uncomfortable."
With CITGO out, 7-Eleven will rely on previously mentioned Tower Energy Group of Torrence, California; Sinclair Oil of Salt Lake City and Frontier Oil of Houston for supplies to be marketed as 7-Eleven-brand gasoline.
CITGO�s reaction? "After many months of deliberation," CITGO General Manager Alan Flagg notes in the company Web site, "CITGO Petroleum Corporation decided to allow its gasoline-supply contract with 7-Eleven to expire at the end of Sept. 2006. This decision was announced last July. The7-Eleven contract did not fit within CITGO�s strategy to balance sales with refinery production after the sale of its interest in a Houston area refinery. 7-Eleven has been a valued customer for many years and we wish them the best."
Analysts point out that the convenience-store chain had already started marketing its own fuel as far back as early 2005. Interesting timing, as it seems to line up with Ch�vez�s comments about selling CITGO, which would give pause to any major retailer. To Oil Price Information Service director Tom Kloza, in fact, 7-Eleven�s move had "nothing to do with Ch�vez," as he was quoted in the Houston Chronicle. Rather, 7-Eleven "just didn't want to be tied to one supplier." Or perhaps to one supplier that could prove unreliable and might have a consumer backlash tied to it.
What Tower, Sinclair and Frontier really had in their favor, Kloza noted, was a willingness to sell fuel cheaper. While some might downplay the significance of this move, what it really represents is that local and domestic providers can supply the gasoline needs of a major retailer for less than the foreign competition. This in itself is reason to be excited and to support this recent move.
This isn't the first time CITGO has made headlines. Last year the company uprooted its traditional headquarters in Oklahoma and moved to Houston. The supplier�s adventures have been in the news since last winter, when Ch�vez made public his offer of lower-priced heating oil to low-income homes in the Northeast � either a heartwarming humanitarian gesture or a cynical publicity ploy, depending on who is doing the spin.
Boycott?
The very thought of Ch�vez so rankles many Americans that a boycott of CITGO retail stations made news in early October. "In Boston, there's a push to tear down the landmark CITGO sign at Kenmore Square," reported the New York Daily News. "In Florida, legislators are demanding that CITGO lose a contract to sell gasoline on the Florida turnpike. The governor of Maine reports that he'll refuse CITGO�s heating-oil-for-the-poor handout this winter."
CITGO has been forced to take the offensive. A press release dated October 2 listed the supplier�s "commitment to U.S. consumers and the energy market." Among their salient points:
� CITGO is incorporated in the United States and is, therefore, a U.S. company, extremely proud of a heritage that goes back nearly a century.
� Venezuela has been a reliable supplier of crude oil and refined products to the U.S. market through out the years.
� While CITGO is a major Venezuelan investment in the United States, several American oil and gas companies either have significant investments in Venezuela or purchase Venezuelan crude oil to satisfy the needs of their customers. This list includes ChevronTexaco, ConocoPhillips, Valero and others.
Then there's the question of the thousands of Americans working for the oil company. CITGO employs around 4,000 people directly and provides jobs for another 100,000 through its network of 13,000 independently owned stations. The Miami Herald pondered this fact in its October 2 editorial. "More than a few people believe that hurting CITGO would give Mr. Ch�vez the symbolic slap in the face he deserves for his intemperate remarks," said the Herald. "We applaud the sentiment, but would caution against acting precipitously � and thereby hurting the wrong people."
"Another problem is that every dollar not spent on CITGO is a dollar spent on another brand of gasoline, and any way you slice it, that means putting money into the pockets of America's enemies," noted the Sun-Sentinel of Fort Lauderdale, Florida. "Thus, the state of Florida should be skeptical of a suggestion by Rep. Adam Hasner, R-Delray Beach, to cancel CITGO�s exclusive Florida Turnpike fuel contract."
The Sun-Sentinel concluded: "The flap over CITGO, and Ch�vez, is further evidence the United States has an unsustainable energy policy. The sooner it reduces its dependence on oil, the sooner it will be able to return the derision of Ch�vez and others and break the back of terrorism."
On the surface, this is true enough. However, the United States is a sleeping giant. It took two airplanes flying into the twin towers to get us to mobilize our military in response to terrorism, and this falls far short of that.
Still, for a population looking to make a statement, CITGO is a highly visible target. The connection between CITGO and Ch�vez cannot be dismissed by saying the company is an American one, or by pointing out that others do business with Venezuela and buy Venezuelan products. A very good point is the number of Americans employed by CITGO, but in the past, the management of CITGO was left to Americans, while currently the shots are being called from Venezuela.
Ch�vez has often accused the U.S. government of "dirty tricks," he has armed his citizens and warned that America cannot invade, he makes constant threats on his weekly television show, and the United States has not responded. One thing Americans do understand is that if you can identify a target � a visible entity that represents the offending party � your greatest weapon is economic. Should a groundswell of Americans decide they have had enough of Ch�vez and target CITGO, they will vote with their dollars, and companies that use American suppliers will be the beneficiaries.
© 2006 Richard R. Loomis
& Susan Salter
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