The Portuguese economy and its lubricant industry both contracted in 2012. Through the first three quarters of the year, the countrys gross domestic product was down 3.5 per-cent compared to the same period of 2011, according to the Lisbon-based National Statistics Institute. Manufacture of oil products decreased 7 percent, to 6.8 million tons, according to the World Economic Forums Global Competitiveness Report 2012-2013.

The consultancy Kline & Co. said Portugals finished lubricant market for 2011 was approximately 74,000 tons, with consumer automotive accounting for 36 percent; industrial 34 percent; and commercial automotive 30 percent.

Overall its a declining market with a projected compound annual growth rate of about minus 2.0 percent for 2011 through 2016, George Morvey, U.S.-based project manager with Klines Petroleum and Energy Practice, said in response to questions from LubesnGreases. A previous Kline study estimated that the Portuguese lubricants market would shrink from 79,000 tons in 2010 to 71,600 tons by 2015.

Galp Energia is Portugals largest energy company and its leading lubricant supplier, with an estimated 30 percent of the market. It is followed by BP (18 percent), Shell (15 percent), Cepsa and Total (each with 11 percent), Fuchs (7 percent) and Repsol (5 percent). Everything else, including genuine automaker oil products and private labels, share 14 percent, according to Luis Gomes, lubricants manager for Galp Energia, Portugals largest energy company.

That breakdown of leading suppliers has evolved in recent years. International majors such as Exxon-Mobil and Shell formerly held top positions, but some of them exited Portugal – along with numerous other countries around the world – as part of a strategy to focus on upstream activities and larger lube markets. That allowed Galp and smaller regional companies to move up.

Economic Aches

There are plenty of ways to show that Portugals economy is hurting:

The average person earns 13,768 a year, less than the Organization of Economic Development and Cooperation (OCED) average of 16,492 a year. There is a considerable gap between the richest and poorest – the top 20 percent of the population earn six times as much as the bottom 20 percent.

Just over 66 percent of people aged 15 to 64 have a paid job. Some 70 percent of men are in paid work, compared with 61 percent of women. The number of minimum wage earners has risen to 11.3 percent, many of them joining the 19 percent of the population that now lives under the poverty line.

Portuguese workers suffered a sharp decline in purchasing power due to decreases in real wages.

The unemployment rate is 15.8 percent, and more than 30 percent of the countrys young people are out of work. Three years ago, the unemployment rate stood at 10 percent.

Labor and social unrest have been recurring issues. Workers at the Matosinhos and Sines refineries owned by Galp staged a five-day strike in October that affected crude refining operations. Its workers struck a month earlier for three days to protest changes to the collective labor agreements following labor reform measures the government implemented. In November, crowds filled the streets to protest government austerity measures. It was the fourth general strike in the country in the last two years.

The demand for European oil products in general was dismal in 2012, according to the International Energy Agencys Oil Market Report issued in December. The sharpest declines in the third quarter of 2012 were seen in Portugal (down 12.8 percent), closely followed by Poland (10.6 percent), Italy (8.9 percent), Ireland (8.8 percent), Greece (8.6 percent), Spain (7.8 percent) and Germany (7.2 percent). Only the Czech Republic, Denmark and Norway bucked the trend, rising by 2.7 percent, 1.0 percent and 0.9 percent, respectively.

Older Cars and Oil Changes

The automobile industry provides an illustration of how the economic problems affect the lubricants industry. While the number of new cars sold annually has dropped by half since 2002 (from 310,823 to 115,737 in 2012), the average age of vehicles has risen 37 percent – from 6.7 to 9.2 years – in the same period, said Jose Motta, Galps former lubricants manager. In all, the country supports a total vehicle fleet of about 6.5 million units.

According to a presentation Motta gave to the 2012 UEIL Congress in Portugal in October, two thirds of the vehicle fleet is five or more years old, and 15 percent is more than 24 years old. The significant drop in the sale of new vehicles does not mean a reduction in the vehicle fleet, Motta said. Instead it is aging. Drivers are keeping their vehicles for a longer period.

The economic crisis that began in 2011 reduced purchasing power in Portugal and should be even more evident in 2013, Gomes told LubesnGreases in response to questions after Mottas presentation.

This means that people are not buying new cars and keep their existing cars. This also means that people will drive less per year, reducing fuel consumption and mileage, Gomes said, noting that fewer people are going to car dealers and workshops for maintenance. That does not necessarily mean people will decide to use lower specification engine oils, he added. It should be the opposite. With people buying fewer cars, they will be more attentive to maintenance, including the type of oil they use.

Gomes concluded that if the economic crisis lasts long, the lubes market will decline further, as fewer new vehicles will be introduced in the market, resulting in reduced sales of premium lubricants.

According to Motta, who moved to a new position after his UEIL presentation, Portuguese consumers are visiting workshops less. From 2000 to 2010, workshops lost 14 percent of their customers. Total oil changes dropped 50 percent, and average annual oil changes per vehicle decreased 32 percent.

Most lubricant sales in the consumer automotive segment – 57 percent – are conducted through franchise and independent workshops, Kline reported. Semi-synthetic and synthetic products combined to make up 45 percent of the segment.

Kline says that the commercial automotive segment in Portugal has been most negatively affected by the global economic crisis. Many companies have had to close their doors, which impacts the sales of light- and heavy-duty commercial vehicles, and their specific lubricants.

Galp in the Lead

Galp owns one of two blending plants operating in Portugal today, and claims to be the only company that develops, produces and distributes lubricants in the country. Its lubricant factory – located in the Matosinhos refinerys industrial complex – produces all the oils, lubricants and greases that Galp sells in Portugal and exports to 30 countries. It has capacity to make 82,000 t/y of lubricants. The other Portuguese blending plant is owned by Fuchs.

Galp Energia operates in a highly competitive market, customer oriented and with a technological background that is unique in the country, Galps Motta said. The blending facility produces finished lubricants and greases and has a state-of-the laboratory.

Under a current distributor agreement with ExxonMobil, Galp markets Mobil-brand lubricants in the Spanish market. Because of its leading position, Galp was not authorized by the European Community to import and sell Mobil lubricants in the Portuguese market.