Vertical integration and industrial restructuring: the economic organization of specific assets in the oil refining industry
Introduction: A Tale of Two Refineries Limetree Bay is over one thousand miles from Houston. Located on Saint Croix in the U.S. Virgin Islands, it is home to one of the largest oil refineries in the Western Hemisphere. The ‘Hovensa facility’ covers an area of 1,500 acres, or the equivalent of 150 football fields. It is capable of processing 495,000 bbls./day of crude oil. Neither is it dependent fully on one type of crude for its runs. In its history, it has successfully processed no fewer than 60 differing types of crude oil. On the North American continent, on the outskirts of Houston, lies another refinery, the Lyondell-Citgo refinery. This refinery, while only processing some 268,000 bbls./day, has been acclaimed ‘the premier heavy crude oil processing facility in the world (Blindview, 2004)’. It can process heavy low cost Venezuelan crude oil into a very desirable product mix of gasoline, jet fuel, and chemical feedstocks. It is capable of producing 100 percent distillate as low sulphur fuel oil and 70 percent of its gasoline product is in the highly desirable reformulated or oxygenated categories (Lyondell, 2004). This was the result of an upgrading which cost its owners $1.1 billion dollars, an upgrading which has yielded very acceptable returns. (The unit grossed revenues of $4.2 billions in 2003). Both refineries are partially owned by the Venezuelan state oil company, Petroleos de Venezuela (PDV), the Hovensa unit in partnership with the American firm, Amerada-Hess, and the Lyondell-Citgo unit through its indirectly wholly owned American subsidiary, Citgo.