Three straight quarters of growth is typically the signal that an economy has pulled out of recession, and Spains gross domestic product was expected to attain 1.5 percent growth by the end of 2014 and expand another 1.7 percent in 2015, Diaz told the 2014 Congress of the European Union of Independent Lubricant Companies, which met in Madrid in October.

Robust Vehicle Manufacturing

Spain is the second-largest vehicle producer in the European Union, trailing only Germany, reminded Diaz, who is Repsols industrial lubricants manager. In 2013, for example, Spain built 2.16 million vehicles, well ahead of Frances 1.7 million and the U.K.s 1.6 million, according to the International Organization of Automobile Constructors.

Thanks to recent changes in Spains employment laws, its once again attractive – for the first time since before the recession – to invest in vehicle manufacturing in the country. And foreign makes like Renault and Nissan are increasing their investment in Spanish production, he said. The size of the countrys vehicle fleet grew strongly from 2000 to hit a pinnacle of about 30 million units in 2008. It stagnated at that level for five years, before vehicle sales finally began rising very slightly in 2013. However, the nations construction sector virtually collapsed as a result of the recession and remains depressed, significantly contributing to the countrys 25 percent unemployment rate, Diaz observed.

While the heavily service-oriented economy now is improving – albeit marginally – domestic demand for base oils and finished lubricants is nowhere close to the nations production capacity, Diaz pointed out. Spain produced around 400,000 metric tons of conventional base oils in 2013. That made for an approximately 84 percent utilization rate of its base oil refining capacity, which was assessed at 475,000 tons per year through October.

Until recently, Spain represented just 6 percent of Europes total base oil supply, but its contribution will step up to 13 percent this year, thanks to what Diaz called a dramatic increase in the nations production capacity. That increase was due to the mid-October opening of Iberian Lubricant Base Oil Co., a 30:70 joint venture between Repsol and South Koreas SK Lubricants, which built 630,000 t/y (13,000 barrels per day) of API Group II and III capacity at Repsols flagship refinery in Cartagena, Spain. Known as Ilboc, this new plant easily doubled Europes existing Group III output, he said.

Repsol also is placing bets on Group I, Diaz revealed. In the next three years, it plans to upgrade the bottoms vacuum column at its refinery in Puertollano, Spain, which has 2,100 b/d of Group I capacity, and add hydrogenation capacity for Cartagenas Group I (currently at 2,700 b/d).

Oversupply with No End in Sight

Spain has been glutted with domestically produced base oils since 2010, and with production growth in 2013 plus the Ilboc barrels added in 2014, is in a considerable oversupply situation. As well, Spain has five sizable base oil rerefineries, with a total rerefining capacity of 125,000 t/y.

Sigaus (Sistema Integrada de Gestion de Acietes Usados), the national body that oversees collection of used industrial and automotive oils, reported that 103,000 tons of used oil was collected in 2013. Of that, 48,000 tons were burned for fuel, and 55,000 tons were rerefined into base oils.

Turning to finished lubricants, Diaz said Spains 10 major blending plants have an estimated annual capacity of 739,000 tons. The countrys demand for finished lubricants was around 361,000 tons in 2013 (a 1.4 percent gain over 2012), and first-half 2014 demand was 3 percent higher than the year-earlier period.

Nevertheless, the in-country market is still mired 35 percent below its 2007 peak, when demand was 549,000 tons. Demand for lubricating grease is off 60 percent since 2007, industrial oils shrank 44 percent, and transportation oils are down 37 percent. Demand for marine lubricants and process oils also have fallen by double digits. Altogether, Spain has lost its appetite for 188,000 tons of lubricants a year, with nearly one-half of that vanished volume being industrial oils.

The drop in domestic consumption has led to a spike in finished lubricant exports. Citing data from Aselube, the Spanish Association of Lubricants, Diaz said that the country exported 170,000 tons of finished lubes in 2013, up 4.5 percent from the year before. Sixty percent of these exports went to Europe and 12 percent to the Americas. A considerable portion also went to markets in North Africa, particularly Morocco, which Diaz noted as being important destinations for the nations future exports. Repsol itself now supplies lubricants to more than 70 countries, he added.

Market Trends

Transportation lubricants, he went on, represent 45 percent of Spains lubricants market, or 272,000 tons in 2013. Industrial oils were 38 percent of demand (138,000 tons), and marine lubricants 7 percent. Just 2 percent are greases, and the remaining 8 percent are process oils.

In the transportation sector, passenger car motor oils comprised around 40 percent of demand in 2013, and heavy-duty engine oils represented 37 percent. This segment is suffering a long-term structural decline because of longer-life fluids and extended drain intervals, similar to other mature markets. One bright spot: heavy-duty engine oil sales rose by 1.4 percent in 2013, as trucking and industrial activity began to revive.

The share of synthetic and semi-synthetic oils is continuing to rise, though, and now approaches 56 percent of total engine oil sales, up from 48 percent in 2009 and 15 percent in 2001. They account for 87 percent of the passenger car motor oils sold, and 21 percent of the heavy-duty engine oil supply.

Spains demand for industrial lubricants such as hydraulic oils, metalworking fluids, process oils and transformer oils improved modestly in 2013 to about 160,000 tons, but is still a far cry from pre-crisis levels. And only very modest growth can be expected for these products this year and next.

The main subsectors in the industrial lubricant market, Diaz said, are hydraulic oils, representing 38 percent of demand, process oils (19 percent), and metalworking fluids (17 percent). Other significant product types include transformer oils, which represent 9 percent of demand, industrial gear oils, with 6 percent of the market, and machine tool lubes, also 6 percent.

Overall, finished lubricants demand will continue to decline in the coming years, Diaz forecast, but will do so at a less-precipitous 1.5 percent per year. Total lubricant sales in Spain in 2018 are projected to be approximately 335,000 tons, he added.

The transportation segment will see demand continue to slip about 3.3 percent per year on average – disappointing, but not as bad as the 5.5 percent yearly losses seen in the past five years, Diaz observed. One dampening factor will be the trend to longer drain intervals, which now are around 16,000 kilometers for passenger cars; in 2007, the average interval was 11,000 km.

Offsetting this trend somewhat is the rising age of the Spanish vehicle fleet. The average car on Spains roads today is 10 years old (versus the 2007 average of 7 years old), and drivers have not yet returned to automobile showrooms to buy new models. Alternative powertrains, such as electric vehicles, also have made only limited inroads with consumers, despite government incentives, Diaz said.

While Ilbocs new refinery will fulfill Europes need for Group III, he concluded by noting that Spains producers of base oils and finished lubricants will continue to rely heavily on exports, especially to North Africa.