China’s first purchase of liquefied natural gas (LNG) using cross-border yuan settlement was completed on Tuesday, signaling an increasing acceptance of the yuan in the international market. The purchase was made by China National Offshore Oil Corporation (CNOOC), the largest offshore oil and gas producer in China, from TotalEnergies through the Shanghai Petroleum and Natural Gas Exchange (SHPGX). The LNG shipment was sourced from the United Arab Emirates, and the transaction volume was about 65,000 tons.
This deal marked the first international LNG transaction settled in yuan, promoting multi-currency pricing, settlement, and cross-border payment in international LNG trading. Guo Xu, the chairman of SHPGX, called it a “meaningful attempt” to help build a new pattern of dual circulation in China, providing a new channel for international players to participate in the Chinese market. Yu Jin, the deputy general manager of CNOOC, said that yuan settlement could promote energy trade globalization and build a diversified ecosystem for LNG trading. In the future, CNOOC plans to continue promoting innovation in the international LNG trade business model.
The yuan settlement of international LNG trading is a significant event in China’s market-oriented oil and gas reform, helping to promote the docking of international and domestic markets. The internationalization of the yuan has made remarkable progress in recent years, becoming the world’s fifth-largest payment currency, the third-largest currency in trade settlement, and the fifth-largest reserve currency. According to recent data, the yuan accounts for 7 percent of all foreign exchange trades across the world and has seen the biggest expansion in currency market share over the past three years.
As the acceptance of the yuan increases in the international market, conditions for yuan settlement in the purchase of bulk commodities are becoming mature. During the first China-Gulf Cooperation Council (GCC) Summit last year, Chinese authorities said that China will continue to import more crude oil and LNG from GCC countries, strengthen cooperation with GCC countries in oil and gas development and clean and low-carbon technologies, and conduct yuan settlement in oil and gas trading.
China and Russia have also moved to strengthen their energy and financial cooperation with the signing of an agreement on Russia’s eastern natural gas pipeline to China and a switch in gas payment currencies from the US dollar to the Chinese yuan and Russian ruble. Russian President Vladimir Putin announced last September that China would pay Gazprom for its gas based on a 50-50 split between the ruble and yuan, according to Sputnik News.
With the recovery of the momentum of China’s economic growth and the further opening of the financial market, the investment and hedging function of the yuan has gradually increased.