Get Ready for Higher Gas Prices

Venezuela isn't Glocca Mora and things there aren't so great. "Oil accounts for more than one-third of Venezuela's gross domestic product, more than half of government revenue and about nine-tenths of the country's exports." Last year, the U.S. imported from Venezuela approximately one million BBD, ten percent of U.S. usage and "more than 40 percent of Venezuela's oil exports." We can eliminate that economic assistance for Venezuela by drilling in the U.S., building new refineries occasionally, and, of course, obtaining Canadian oil via the Keystone oil pipeline. Oh. Wait:

This week President Obama handed down what may prove to be one of the most fateful decisions of his entire administration when he rejected the plan to build the Keystone XL Pipeline carrying oil from the tar sands of Canada to the refineries of Houston. The decision did not win him one new vote but was crucial in protecting his environmental flank. The movie stars and Sierra Club contributors were getting restless and had drawn the line in the sand.

But aside from that it was pretty stupid and Congress apparently has the authority to approve the pipeline on its own, subject to a presidential veto. It might even be a useful Republican campaign issue.

Although closure of the St. Croix refinery will be unfortunate for the U.S., it will be worse for Venezuela:

According to 2010 annual management report released by state-run oil holding Petróleos de Venezuela (Pdvsa), Venezuela's share in US refineries was 1.08 million barrels per day, which were processed in five plants: Lake Charles, Corpus Christi, Lemont, Chalmette and Saint Croix.

Hovensa's shutdown leads to a 22.7% reduction in Pdvsa's refining capacity in the United States, which stands now at 841,000 bpd.

Venezuelan-owned PDVSA could help but has done little to keep the Hovensa refinery working even though Venezuelan oil has long been a cash cow for the country. However, PDVSA has other things to do:

What used to be a “mere” oil company has been tasked in recent years with building affordable housing, paving country roads, creating and running farms, and importing, distributing and selling food, amongst other things. As of today, PDVSA will now hold 40% of the venture to develop the country's gold mines, including Las Cristinas and Las Brisas. Corporaction Venezolana de Guayana (CVG), the state owned heavy industry company, will hold the other 60%.

"What they are creating is a super-state. No longer is PDVSA a state within a state, but now it is becoming something above the state,” says Rafael Quiros, a professor at Central University specializing in oil economy and author of the upcoming “Marchas y Contramarchas del Petróleo en Venezuela: 1989-2001”, a book that analyzes the last few years in Venezuela’s oil policy.

Professor Quiros -- widely considered pro-Chavez in the local political divide -- is very critical of giving PDVSA tasks other than “production, refining, transportation and exporting” of oil.

It's a bit worse than simply that PDVSA is spread too thin and is a useful tool to help el Presidente Chávez get reelected. Heavily subsidized to the point that it retails at twelve cents per gallon, gasoline is essentially free in Venezuela and is used expansively as are other non-economic goods.  The country also provides petroleum to "needy" countries on extraordinarily generous terms:

Last year, according to the Venezuelan Central Bank, accounts receivable with “friendly countries” reached US$ 23.088 billion. As of September 2011, this number had reached US$ 32.7 billion, a difference of, give and take half a billion of US$ 9 billion in nine month or US$ 1 billion per month.