Major blow to USD: China completes first intl. LNG contract using yuan

By Al Mayadeen English
Source: Agencies
30 Mar 2023 09:29
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TotalEnergies supplied China with 65,000 tons of Liquified Natural Gas imported from the UAE.

A Sinopec worker walks past LNG storage tanks at Sinopec's LNG terminal in Tianjin, China. (Reuters)

China completed a historic landmark deal to settle the first international Liquified Natural Gas (LNG) trade using local yuan, Shanghai Petroleum and Natural Gas Exchange stated on Tuesday.

French TotalEnergies supplied China with 65,000 tons of LNG imported from the UAE, and the commodity transaction was settled using Chinese currency, the statement added.

"In the future, CNOOC will continue to promote innovation in the international LNG trade business model," CNOOC Deputy General Manager Yu Jin said.

Bank of International Settlements (BIS) showed in December 2022 that the Chinese yuan has moved up to the fifth-most traded position, in terms of total global foreign exchange turnover, with a market share of 7%.

The yuan's new ranking, which increased from eighth place in a 2019 survey, highlights the currency's appeal in the face of efforts to de-dollarize the world's economies and a general consensus among investors about the world's second-largest economy's promising future.

"The yuan's expansion in the global market also reflects the global confidence on the outlook of the Chinese economy, which is underpinned by its position as the world's largest trading nation, its sound economic fundamentals and sheer market size," Chief Research Fellow at the Sinosteel Economic Research Institute Hu Qimu told The Global Times news outlet then.

De-dollarization continues

Earlier on Wednesday, China and Brazil struck a deal to ditch the US dollar in their bilateral transactions, which is expected to reduce investment costs and develop economic ties between the two countries, the Brazilian government stated on Wednesday.

The agreement between the Asian superpower and Latin America's largest economy - the mutual top trading partners - was a new financial and political strike against the green banknotes as more countries, with the growing geopolitical and economical influence of the East, are paving the way to distance themselves from the US politically-oriented currency.

"The expectation is that this will reduce costs... promote even greater bilateral trade and facilitate investment," Brazil's Trade and Investment Promotion Agency (ApexBrasil) said.

More to come

Interest in using the yuan and other currencies from oil importers has witnessed a hike following the persistent and unending sanctions by the US and the West against Russia, one of the world’s biggest oil producers and exporters, in light of the war in Ukraine.

In December 2022, Chinese President Xi Jinping made a historic visit to Saudi Arabia to attend the China-Arab summit. Xi then assured Gulf Arab leaders that his country would put in the effort to purchase energy in yuan rather than dollars.

China purchases more than a quarter of Saudi Arabia's oil exports. Those sales, if priced in yuan, would raise the value of China's currency. The Saudis were considering back in March including yuan-denominated futures contracts, known as the petro-yuan, in the pricing model of Saudi Arabian Oil Co., known as Aramco.

It would be a significant move for Saudi Arabia to price even a portion of its over 6 million barrels of petroleum exports in a currency other than dollars.