The Adelaide-based company plans to begin building a diesel import and storage terminal at Port Bonython, South Australia this year.

Stuart and the Scott Group, a transport, logistics and fuel distribution business, will build and operate the project as an equal joint venture.

The $45 million terminal will import up to 500 million litres of diesel a year from refineries in Asia to supply the state's booming minerals sector and capitalise on seasonal demand from broadacre agriculture in the mid-north region.

The project is expected to provide long-term, stable cash flows, offsetting volatility in the upstream business.

A second stage of the project could be the construction of a diesel refinery with a minimum capacity of 100 million litres per year, although this is contingent on the right economics, according to Stuart.

Managing director Tino Guglielmo said the nature of crude oil from the company's Worrior field prompted the company to consider moving downstream. Worrior oil has a very high diesel fraction (up to 70%) and low sulphur, making it ideal for automotive uses.

Stuart initially studied on-site distillation and the sale of diesel to heavy users in and around the Cooper Basin. The profit margins from this type of venture would stem largely from savings on transport costs, rather than refining margins.

The study coincided with a surge in mineral exploration and mine development in South Australia's north, which has driven current and projected demand for diesel far beyond the levels that could be refined locally, according to Guglielmo.

"We then started looking at the economics of a coastal location and importing fuel to meet market demand," he said.

"The whole thing snowballed from a remote refinery based in the northern region of South Australia to a fuel importation joint venture with the potential for a refinery."

Guglielmo said profit margins associated with importing diesel from refineries in South East and Northern Asia were actually better than originally envisaged and had enhanced the economics of he project's first phase.

He said the feasibility of adding a refinery would be fully studied, but it was increasingly difficult to compete with large overseas fuel suppliers. In addition, the projected capital costs for a diesel refinery at Port Bonython would rise significantly with the introduction next year of tougher standards for sulphur emissions.

Stuart was keen to find a partner for its move downstream because it recognised the need for transport and fuel distribution skills in addition to its core competency of managing projects, according to Guglielmo.

"We saw a very good business opportunity, but it's not entirely our heartland," he said. "So we partnered up with Scotts because of their transport, logistics and fuel distribution experience."

For more on downstream opportunities for upstream petroleum players, see the June issue of Petroleum magazine, out in late May.