Chinese and French energy companies this week finalised the first-ever deal on liquified natural gas (LNG) in China settled in the renminbi yuan currency. The trade, involving 65,000 tons of LNG imported from the United Arab Emirates, marks a major step in Beijing's attempts to undermine the US dollar as universal "petrodollar" for gas and oil trade.
Yu Jin, the general manager of the China National Offshore Oil Company (CNOOC,) which closed the deal with TotalEnergies, says global resource procurement based on the yuan could "promote the globalisation of energy trading and build a more diversified ecology."
Guo Xu, chairman of the Shanghai Petroleum and Natural Gas Exchange which facilitated the deal, was quoted by the state-controlled China Daily saying the transaction promoted "multi-currency pricing, settlement and cross-border payment".
The says China is a major player in the global LNG market, adding the "financial infrastructure of cross-border yuan settlement" would provide "more convenient channels for domestic and international oil and gas resources".
French economic daily La Tribune reported that TotalEnergies "simply explained that this unprecedented yuan transaction was 'a request from CNOOC' in a hydrocarbon market where purchases have long been settled in dollars."
Neither TotalEnergies nor CNOOC wanted to comment in detail on the deal, according to the paper.
Landmark visit
For years Beijing has been striving to increase the relevance of its currency in the global markets and challenge the dominance of the US dollar in international trade, particularly in energy trade.
In a landmark visit to Riyadh last December, Chinese President Xi Jinping suggested that China and the Arab Gulf nations should use the Shanghai Petroleum and National Gas Exchange as a platform for carrying out yuan settlement of oil and gas trades.
"China will continue to import large quantities of crude oil from Gulf countries, expand imports of liquefied natural gas, strengthen cooperation in upstream oil and gas development ... and fully use the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade," according to Xi, quoted by Reuters news agency.
Despite the yuan making inroads in global trade, currently it only accounts for 2.7 percent of the market, while the US dollar's share is 41 percent.
It must be emphasized how historic this is: For decades, virtually all energy from the Persian Gulf was sold in dollars. Now China is buying LNG from the UAE in its own currency, yuan.
— Ben Norton (@BenjaminNorton) March 29, 2023
US economic hegemony has heavily relied on the petrodollar system, which is now breaking apart https://t.co/0TWxXBG2Bc
To reduce its dependence on the greenback, Beijing has already struck deals with countries such as Russia and Brazil.
Over the past year, Russia has shifted to trading in yuan after the West imposed sanctions on its exports, imports, and energy trade, making the Chinese currency Russia President Vladimir Putin's only alternative to reduce exposure to the US dollar and the euro.
On Wednesday, during a visit by President Luiz Inácio Lula da Silva to Beijing, China and Brazil announced an agreement for trade between the two countries to be exclusively conducted in the yuan and the real, Brazil's currency.
