First Chinese Yuan Settled LNG Trade Complete

China National Offshore Oil Corporation (CNOOC) headquarters, on right (Daniel Case)

The Lede: China has completed its first liquefied natural gas trade settled in its own currency.

What We Know

Chinese state oil and gas giant China National Offshore Oil Corporation and France's TotalEnergies have completed China's first yuan-settled liquefied natural gas trade through the Shanghai Petroleum and Natural Gas Exchange.
Approximately 65,000 tons of LNG imported from the UAE were transferred.

The Background: Pushing for more trade deals in yuan has been one of China’s objectives in recent years. A significant shift to the Chinese currency would increase the relevance of the yuan on the global markets and challenge the U.S. dollar’s dominance in world trade, especially as it pertains to the energy space where the dollar plays a key role. Since the imposition of western sanctions on exports, imports, and energy, Russia has turned to trade in yuan. China’s currency has become an alternative for Russia to reduce its exposure to the U.S. dollar and the euro. The BRICS organization, which Russia and China are a part of, have also expressed its consideration of challenging the dollar reserve currency status with a BRICS currency.

Likely Outcomes

While the yuan accounts for just 2.7% of the market compared to the U.S. dollar’s 41% share, this percentage may increasingly close if China is able to get momentum and close more energy deals with the yuan as the settlement currency. This may also attract other industries to the possibility of settling in yuan. However, some experts warn that a more open international yuan market may introduce volatility and weakness to the Chinese currency.
The U.S. may set up restrictions or penalties on companies or countries that allow for the settlement of energy transactions in yuan. This would force energy producers to choose sides in an increasingly divided world market. This development may open the door to more instances of de-dollarization in the energy market and beyond. To avoid future de-dollarization, the U.S. will closely monitor and respond to this type of development in international trade.

Quotables

“China will continue to import large quantities of crude oil from GCC countries, expand imports of liquefied natural gas, strengthen cooperation in upstream oil and gas development, engineering services, storage, transportation and refining, and make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade,” Xi Jinping, President of China

Good Reads:

China Settles First LNG Trade In Yuan (Oil Price)

CNOOC completes first yuan-settled LNG trade (China Daily)

China Looks To Expand Use Of Yuan In Energy Deals (Oil Price)