U.S. Energy Department to Give Citgo Crude Oil From Reserves

By Christian Schmollinger and Tina Seeley

Sept. 3 (Bloomberg) -- The U.S. Energy Department will grant a request from Citgo Petroleum Corp. to supply 250,000 barrels of crude from the Strategic Petroleum Reserve after Hurricane Gustav halted deliveries.

The oil is needed after the closure of Louisiana's Calcasieu channel caused by Gustav, Andrew Beck, the department's chief spokesman, said in a statement late yesterday. Citgo, owned by state oil company Petroleos de Venezuela SA, operates a 320,000 barrel-a-day refinery in Lake Charles, which sits on the waterway.

The U.S. holds the world's largest emergency stockpile of oil, with about 700 million barrels in four sites along the Gulf Coast. The department has said it will release oil, if requested, after Gustav halted production in the Gulf of Mexico.

Citgo's request is the only one received so far, Energy Department spokeswoman Alyson Austin said in a telephone interview yesterday. Negotiations will be conducted over terms for delivery of the oil and subsequent replacement of the reserves, she said.

Calls to Citgo spokesman Fernando Garay about the request weren't immediately returned yesterday.

``It's a relatively small request because of the logistical challenges of trying to get oil through Lake Charles,'' Austin said.

Austin said there would be no problems fulfilling the request even though three out of four of the sites that store oil for the reserve have been shut down by the storm.

She also said ``the door is not closed'' on future requests for oil from the reserve.

ConocoPhillips, which has shut refineries in Lake Charles and Belle Chasse, Louisiana, because of Gustav, ``is currently assessing its options,'' said company spokesman Rich Johnson yesterday. ``No decision has been made at this time with regard to purchasing oil from the SPR.''

To contact the reporters on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net; Tina Seeley in Washington at tseeley@bloomberg.net.