LyondellBasell seeks new oil

Lyondell Basell CEO Jim Gallogly answers questions as he participates in the Reuters Energy Summit in Houston June 13, 2011.

HOUSTON (Reuters) - LyondellBasell (LYB.N) is looking for new oil supplies for its Houston refinery as prime supplier Venezuela shortens its contract terms to customers, its chief executive said.

The chemical company's crude oil supply contract with state owned Petroleos de Venezuela SA (PDVSA) for its 268,000 barrel-per-day Houston plant expires in July 2011.

LyondellBasell is negotiating for more supply with Venezuela. The company also is looking at different sources, including Canada, Chief Executive Jim Gallogly said at the Reuters Global Energy and Climate Summit on Monday.

"Venezuela is going to shorter-term contracts with all of its customers," Gallogly said.

"I should point out that they sell a lot of spot volume and not as much contract. Instead of multiyear contracts, they're selling some on contract-basis, shorter term and a lot more on spot."

Venezuela, once one of the top three suppliers of U.S. crude, has seen its market share in the United States drop in recent years as production falls, due in part to a lack of investment, according to analysts.

The Houston refinery, known as a deep conversion refinery, can produce fuels to strict U.S. environmental standards from cheaper, heavy sour crude, which make up a large portion of Venezuela's exports.

Gallogly said he had first seen the shift in the length of contract last year. He said the refinery was now taking more spot supplies from Venezuela and other producers.

"It's been happening over the last year or so. I think maybe a little bit before because we had a contract it wasn't hitting us as much. We're buying spot cargoes fairly regularly from the Venezuelans and a variety of other sellers."

The Houston refinery was a once a joint-venture between Lyondell and Citgo Petroleum Corp, PDVSA's U.S. refining subsidiary. Lyondell signed the contract for crude from PDVSA as part of the 2006 agreement to buy Citgo's 41 percent interest in the refinery for $2.1 billion.

"They've been a good, reliable supplier to us," Gallogly said at the Reuters Summit, held at the Reuters office in Houston. "We're happy to buy Venezuelan crude."

The company's Houston refinery bought 250,000 barrels per day of Venezuelan crude in March, according to data from the Department of Energy's Energy Information Administration.

Production in South America's main oil exporter dropped to an average of 2.78 million barrels per day (bpd) last year, the government of Venezuela says, which is the lowest level since 2003 when a strike crippled state-oil company PDVSA for months.

Independent oil analysts peg that figure even lower.

LIGHTNING STRIKE

The company is in the process of restarting its Morris, Illinois, ethylene plant that was struck by lightning in late May, Gallogly said.

The company declared force majeure for its polyethylene products after lightning took out the plant's co-generation power plant and a utility backup.

"We lost both. That's how rare a weather event that was. It's was just a serious hit," Gallogly said. "We're coming back up now."

(Reporting by Ernest Scheyder, Matt Daily, Erwin Seba, Anna Driver, Matt Robinson, Braden Reddall and Michael Erman; Editing by David Gregorio)

(Corrects to show crude oil supply contract expires 2011 not 2012, per company)