Last checked at 
--Clyde Russell is a Reuters market analyst. The viewsexpressed are his own.--
By Clyde Russell
SINGAPORE, March 3 (Reuters) - It's relatively easy to seeRoyal Dutch Shell's motivation in selling its Australianrefinery and retail network, but somewhat more difficult to workout Vitol SA's reasons for buying.
Shell agreed on Feb. 21 to sell its refinery inGeelong, near Melbourne, as well as fuel terminals and 870service stations to Swiss-based Vitol for about $2.6billion.
For Shell, the deal means it gets much-needed cash andmanages to dispose of an asset it was planning to close down.
The Anglo-Dutch major had previously flagged shutting downthe 60-year old, 120,000 barrels-per-day (bpd) refinery by 2015,unless a buyer could be found.
Shell had already closed its 90,000 bpd Clyde refinery inSydney, converting what had been the nation's oldest plant intoan import and storage terminal.
Shell wasn't unique in having problems in Australia, withvirtually all the oil majors that used to dominate the fuelindustry making moves to rationalise their businesses.
Caltex Australia is closing its 124,500 bpd Sydneyrefinery, leaving it with one plant in Brisbane, while ExxonMobil closed its Port Stanvac refinery in Adelaide in2003, while still operating the 80,000 bpd Altona plant nearMelbourne.
BP operates two refineries, in Brisbane and south of Perth,but they may be up for sale as well, with Vitol Chief ExecutiveIan Taylor not ruling out an interest in acquiring the plants.
The problem for all Australia's refineries is that they areold and small, especially when compared to the giant, moderncomplex refineries that have been built in the past decadeacross Asia.
The youngest plants, both in Brisbane and both started in1965, are coming up for their 50th birthdays, and while the havebeen upgraded over time, they are well short of the scope andefficiency of export-focused plants such as Reliance Industries'1.2 million bpd complex on India's west coast.
The question is why would Vitol decide to invest in abusiness in Australia that an established player couldn't runprofitably, and in an industry subject to enormous competitivepressures from well-resourced global players?
TERMINALS, DISTRIBUTION THE KEY
The key isn't the Geelong refinery, even though Vitol hassaid it plans to continue operating and investing in the plant.
Vitol may also be able to run the refinery a bit harder thanShell, which tends to be a conservative operator, and it mayalso be able to use its trading nous to source crude at morecompetitive prices.
But the real advantage is in the import, storage anddistribution network that comes with the refinery.
Australia's refining capacity stands at just over 500,000bpd, but demand is closer to 1.1 million bpd.
The country also tends to be a higher user of diesel thanother countries with a similar size economy, given the relianceof mining and agriculture on the fuel.
Owning import, storage and distribution networks gives Vitola leg up in accessing what it believes will be a growing market,especially as Australia's resource sector continues to grow evenas China's demand growth for commodities slows.
New iron ore mines in Western Australia and liquefiednatural gas plants in the east and northwest will leadAustralian diesel demand higher, while immigration-fueledpopulation growth means retail fuel demand should also grow at afaster pace than in many developed economies.
Up until recently Australia's refined products sector hadbeen a comfortable market dominated by the international majors.
Vitol's deal changes this, and continues a process startedby rival trader Trafigura, whose Puma Energy unitbought three fuel distributors and retailers in separate dealsearly last year.
Macquarie Group, Australia's largest investmentbank, and Glencore Xstrata were also believed to beinterested in buying Shell's Australian assets.
This makes it more likely that any decision by BP or CaltexAustralia to exit the country will attract buying interest.
While Vitol clearly believes there is value in the storageand distribution sector in Australia, and may be able to run theGeelong refinery profitably, the challenge is likely to be theretail station network.
Fuel retailing is highly competitive in Australia, withprices seldom varying between the major sellers.
Margins are seldom more than a few cents per litre, meaningthat the real profits in service stations is in the attachedconvenience stores.
This may well prove to be the hardest part of the Shell dealto get right for Vitol.
