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Galp Energia Says Portugal Will Become Net Exporter of Diesel

April 5 (Bloomberg) -- Galp Energia, Portugal’s biggest oil company, said the country will become a net exporter of diesel after it completed a 1.4 billion-euro ($1.8 billion) investment on a conversion project at its refineries to increase output of the fuel.

Galp will also be able to acquire cheaper, heavier crudes and processing at its two refineries is now more integrated, the company said in a statement handed to reporters in Lisbon. Its plant in Oporto can process about 110,000 barrels a day, while the Sines refinery has a 220,000-barrel-a-day capacity. The hydrocracker at Sines started commercial output on Jan. 10.

“A refinery is more or less competitive depending on its scale,” Chief Executive Officer Manuel Ferreira de Oliveira said today at Galp’s plant in Sines. “The bigger it is, the more competitive it can be.” A refinery’s competitiveness also depends on whether it is “complex” and whether it can “extract more value from the same crude.”

The Galp CEO on Feb. 11 said there is now a balance between diesel supply and demand in the Iberian market after investments in refineries in the region and a drop in consumption. The oil products markets in Spain and Portugal contracted by 7 percent each last year.

Europe’s demand for fuels has been dropping since at least 2010, according to the International Energy Agency. The decline in consumption led to the closure of at least seven refineries in the past three years operated by companies such as Total SA and ConocoPhillips. France now has eight operating refineries compared with 12 in 2009 and 24 in 1977.

“The biggest component of the cost structure of a refinery is the cost of energy, not the cost of labor,” Ferreira de Oliveira said. “The cost of labor is very important but it is not the biggest component. In Portugal we now have labor costs that are marginally higher than the European average in the refining industry.”

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To contact the reporter on this story: Joao Lima in Lisbon at jlima1@bloomberg.net

To contact the editor responsible for this story: Anabela Reis at areis1@bloomberg.net

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