Royal Dutch Shell's new Singapore ethylene cracker is operating at around 70% of capacity and is using some 30,000 tons a month or more of naphtha as feedstock, traders said on Wednesday. The unit will run at more than 80%of capacity soon, they added.

The naphtha volumes used at Shell is not huge, but it has pushed up market sentiment as the 800,000 ton-per-year (tpy) cracker was designed to use mainly heavy oil as feedstock. It is coming a time when Thailand also needs additional naphtha feedstocks for the country's petrochemical facilities.

"The unit is designed to use mainly hydrowax, but there was talk that they are not getting enough heavy fuels due to technical issues," said a Singapore-based trader.

A spokesperson for Shell said the company does not comment on operational matters.

Shell has recently been aggressively picking up Indian spot naphtha cargoes - almost 715,000 tons for March to June loadings - leading to talk that this could be due to its use of the light fuel for the petrochemical plant. But some traders said this has more to do with its trading positions. The oil major hardly bought any spot volumes from India for January or February loadings. But they have a three-month term contract with Mangalore Refinery & Petrochemicals Ltd (MRPL) for 30,000 tons each for December-February lifting from New Mangalore port.

Japanese trading house Itochu has often been the dominant buyer of Indian spot cargoes, as it has limited term Middle Eastern supplies, traders said. But Shell overtook Itochu as the leading buyer of Indian cargoes for April-loading cargoes, snapping up nearly 300,000 tonnes compared to the 100,000 tonnes it bought for March loading from India.

Shell, which dropped a 12-month contract with Kuwait Petroleum Corp (KPC) for December-November due to high prices, had bought around 185,000 tonnes of Indian naphtha for May.

Premiums Holding Up

Cracks, the premiums/losses obtained from refining Brent crude into naphtha, were around $128 a ton Wednesday, down from $142.10 on Tuesday as the strong demand from North Asia is starting to ease, although levels were still more than $112.50 a month ago. Shell's cracker started up in March, and that was also the month when Thailand's Map Ta Phut Olefins started up its 900,000-tpy naphtha cracker. With that, Thailand needs additional imports of around 110,000 tons of naphtha a month as its domestic supply is not enough to meet demand.

"Based on estimates, Thailand could be short of around 2 million tons of naphtha a year," said a Southeast Asian trader. The additional naphtha demand had helped sustain sentiment. But going forward, Shell is expected to reduce its use of naphtha to marginal levels.

"They are looking to increase their cracker runs to more than 80% soon. The use of naphtha will decrease, while the use of heavy oil will go up," said another trader. Typically, it takes one to two months for a cracker to ramp up to full speed once it has achieved ethylene which meet industry specifications.

Shell announced that it has achieved on-spec ethylene on March 22.

"Given the current positive petrochemical margins, by right Shell should be maximizing runs," said an Asian end user. Petrochemical margins have been strong in recent months and are currently estimated at $400 a tonne.