UPDATE 4-Vitol pays $2.6 bln for Shell's Australian refinery, petrol stations

* Vitol to keep refinery open, says can run profitably

* Abu Dhabi sovereign wealth fund to take stake

* Deal helps Shell toward $15 bln asset sales target

(Adds Shell background, analyst comment, share price)

By Byron Kaye and Florence Tan

SYDNEY/SINGAPORE, Feb 21 (Reuters) - Top global oil trader Vitol SA Href="NewsSearch">VITOLV.UL is buying Royal Dutch Shell's RDSa.L Australian refinery and petrol stations for about $2.6 billion in its biggest acquisition, looking to grab a share of a growing oil product market.

The purchase will pit Swiss-based Vitol against arch rival Trafigura Href="NewsSearch">TRAFG.UL , which became Australia's largest independent fuel retailer last year in a market where the less nimble oil majors are looking to cut losses.

Australia has become one of Asia's biggest fuel importers, creating opportunities for traders as the majors have shut older, small refineries, under pressure to shift investment to oil and gas production that generates better returns.

The Australian deal puts Shell comfortably on track to hit its target of $15 billion in asset sales over the next two years, set by new chief executive Ben van Beurden as part of an austerity drive following a profit warning in January.

News Search ID:nL5N0L40RH

So far this year, Shell has sold about $5 billion of assets and analysts said the swift pace of disposals could prompt the company to raise its target.

"The speed at which Shell can sell relatively immaterial assets for billions of dollars highlights how unambitious its $15 billion programme is. We would expect the disposal target to be raised in due course," Investec analysts said.

Vitol Chief Executive Ian Taylor said he expects to make good returns from the business eventually, as the refinery, while small, was a high-quality plant, with good distribution chains into the Australian market.

Analysts said the acquisition made sense for Vitol even though Shell couldn't run it profitably enough to keep it.

"These two companies have different return expectations and targets they're willing to accept," said Craig Pirrong, Professor of Finance at the University of Houston.

With the Australian purchase, which includes 870 service stations plus Shell's bulk fuels, bitumen and chemicals businesses, Vitol is betting Australian fuel demand will continue to grow faster than in Europe, and eventually the world will be short of refining capacity.

"Longer term, yes, we are making a bet that refining will actually be a cyclically good business. And that's what we've found so far, by the way," Taylor told reporters in Melbourne, hours after signing the deal at the refinery in nearby Geelong.

It was also attracted to the country as it has a free market, in contrast to other places in Asia where oil product prices are heavily controlled, Taylor said.

He said Vitol would not be interested in a stake in the retail business China's Sinopec Corp 0386.HK has put up for sale. News Search ID:nL3N0LO3MC

Shares in Shell traded up 0.2 percent at 1132 GMT, in line with Britain's bluechip index .FTSE .

HOTBED FOR TRADERS

Dutch-owned Vitol has refining operations in the United Arab Emirates and Antwerp, and formed a joint venture with private equity firm Carlyle Group CG.O in December called Varo Energy to own refining and distribution assets in Switzerland and Germany. News Search ID:nL6N0JY1FW

Taylor confirmed that the Abu Dhabi Investment Council sovereign fund was part of the group that bought the assets, but declined to name other parties who may take an equity stake in the deal, which is expected to be partly debt funded.

Vitol joined the race for the Australian petrol stations after Trafigura's Puma Energy arm bought two fuel distributors last year. News Search ID:nL6N0BR61C

Others eyeing the market include South Korean refiner S-Oil

010950.KS , which said last month it was in exclusive talks to buy a stake in Australia's United Petroleum, a privately owned business valued at about A$1 billion, including debt, that received a number of approaches from international companies following Puma's takeover of Ausfuel. News Search ID:nL3N0L31WQ

Australia's refineries, owned by Shell, BP BP.L , ExxonMobil XOM.N and Caltex CTX.AX , have mostly booked losses over several years as tighter fuel quality standards and mega-refineries in Asia have made them uncompetitive.

Rather than spend money on upgrading plants, the majors have been looking to sell them or turn them into fuel import terminals. Taylor said Australia was likely to need more fuel terminals in the long run, an opportunity Vitol would look at.

SELL-OFF

Shell, which retains substantial gas interests in Australia as well as a $7 billion stake in Woodside Petroleum WPL.AX , was making tough choices to improve its overall competitiveness, CEO van Beurden said in a statement.

Analysts and bankers say Shell may consider selling its 23.1 percent stake in Woodside to help meet its $15 billion disposal target, which equates to about 6 percent of Shell's market value.

The company generated $1.7 billion of divestment proceeds last year.

Earlier this week, Shell offloaded its Italian retail business for an undisclosed price, reported in the Italian press as to 500 million euros. In January, it also sold a stake in a gas project in Western Australia for $1.1 billion and a stake in a Brazilian oil project for $1 billion. News Search ID:nL6N0LP2HF

It has already sold downstream assets including refineries in the UK, Germany, France, Norway and the Czech Republic.

"The new (Shell) management is being ruthless in cutting out anything that they think is extraneous to their core," said Al Troner, President of Asia Pacific Energy Consulting in Houston.

($1 = 1.1134 Australian dollars)

(Additional reporting by Sonali Paul in MELBOURNE and Cezary Podkul in NEW YORK and Sarah Young in LONDON; Editing by Richard Pullin and Erica Billingham)

((byron.kaye@thomsonreuters.com)(+612 9373 1815))

Keywords: AUSTRALIA COMPANIES/SHELL