China has recently completed its first trade of liquefied natural gas (LNG) settled in yuan, marking an important step in China’s efforts to establish more trade deals in its currency and challenge the dominance of the U.S. dollar in global energy trade. The Shanghai Petroleum and Natural Gas Exchange announced that Chinese state oil and gas giant CNOOC and TotalEnergies completed the first LNG trade on the exchange with settlement in yuan. The trade involved around 65,000 tons of LNG imported from the United Arab Emirates.
China has been trying to increase the relevance of its currency in global markets for several years, and using the yuan for more energy trade is a significant step towards that goal. During a visit to Riyadh in December, Chinese President Xi Jinping called for China and the Arab Gulf nations to use the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trades. He also emphasized China’s intention to import large quantities of crude oil from GCC countries and expand imports of liquefied natural gas.
While the yuan has made some inroads in global trade, it still only accounts for 2.7% of the market, compared to the U.S. dollar’s share of 41%. However, with the increasing use of yuan in energy trade, China could become a stronger nation and potentially challenge the U.S. dollar’s dominance in international trade. This move may also have implications for the BRICS nations, as they may be less likely to use the U.S. dollar for oil payment transactions in the future.
It is worth noting that Russia has already turned to trade in yuan due to Western sanctions on its exports, imports, and energy trade. As a result, the Chinese currency has become Putin’s only alternative to reduce exposure to the U.S. dollar and the euro.
In conclusion, China’s first trade of LNG settled in yuan is a significant step towards establishing more trade deals in its currency and challenging the U.S. dollar’s dominance in international trade. While the yuan’s share of the market is still relatively small, this move could make China a stronger nation and potentially lead to a shift away from the U.S. dollar in energy trade.
