Oil Trader Vitol Bets Big With Shell Deal in Australia

By Sarah Kent 

The world's largest independent oil trader closed its biggest-ever acquisition Friday in a bold deal to buy Royal Dutch Shell PLC's downstream business in Australia.

The $2.6 billion deal will give Dutch oil-trading titan Vitol Group SA a substantial foothold in the fast-growing Australian market.

The company is already very active in the region. "This is obviously a significant move to buy a system...that will help them build out their position," said Roland Rechtsteiner, partner and global head of the oil and gas practice at consultancy Oliver Wyman.

Under the acquisition, Vitol and its investment partner, Abu Dhabi Investment Council, will purchase Shell's 120,000-barrels-a-day Geelong refinery and 870 gas stations as well as gaining lucrative supply contracts to Australia's big mining companies and other downstream interests.

The deal stands to strengthen Vitol's trading position in an attractive market. Australia is the world's third-biggest fuel consumer and, unlike in other developed countries, demand continues to grow. Meanwhile, stiff competition from larger and more sophisticated refineries in Asia has led many of Australia's refineries to close in recent years, driving up its demand for imports.

According to consultancy JBC Energy, Australia's net oil-import requirements will soar this decade, rising to 570,000 barrels a day in 2020 from 366,000 barrels a day in 2013. Vitol's rival Trafigura Beheer B.V. has also expanded its footprint in the country, spending more than $800 million snapping up storage terminals and retail stations there in the past year.

"It fits in with [Vitol's] trading strategy," said Jonathan Leitch, head of oil-product short-term analysis at Wood Mackenzie. "Vitol is an active trader, so having that refinery gives them a footprint and the opportunity to expand, and it gives them an insight into what is actually happening."

The deal with Shell builds on a substantial push by Vitol into the downstream sector in recent years. The company spent $1 billion to buy Shell's retail stations in Africa in 2011 before snapping up Switzerland's Cressier refinery from a bankrupt independent refiner in 2012. Late last year, the company joined with private-equity giant Carlyle Group to buy OMV AG's Bayernoil refinery in Germany.

The big-ticket deal making comes as the world's biggest commodity merchants are increasingly investing in significant assets to support their trading businesses. Investments in infrastructure like refineries, oil terminals and pipelines can help traders secure their position in the market and lock in profits in a high-volume, low-profit business.

Write to Sarah Kent at [e-mail]

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