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China’s CNOOC reported the receipt of the first cargo of liquefied natural gas that the company paid for in Chinese yuan in the latest instance of the ongoing diversification of international energy trade.
The state energy firm, as quoted by China Daily, said it had bought 65,000 tons of LNG from the UAE, noting that settling international trade deals in the local currency was becoming more mature.
International trade in the Chinese currency has been expanding rapidly over the past year, after the West cut Russia out of the SWIFT system, which encouraged the latter to seek alternatives.
To date, almost all the commodities that China buys from Russia are paid for in yuan, Reuters reported earlier this month, as Chinese banks expand their presence in Russia, complete with an alternative payment settlement system dubbed CIPS.
Since the start of the war in Ukraine, the volume of commodity trade between Russia and China has reached $88 billion, the report noted, contributing significantly to the internationalization of the Chinese currency although it still constitutes a tiny portion of the total.
International trade in yuan stands at 2.5%, while trade in U.S. dollars accounts for 39.4% of the total and trade in euros accounts for 35.8%, according to data from SWIFT.
Reuters cited one BNP Paribas analyst as forecasting a “snowball effect” for the yuan’s international adoption as more countries join China’s sphere of influence "especially after they've seen what the U.S.-led sanctions against Russia have done."
“This is a very long term development stretching into the coming one or two, even three decades," Chi Lo said, adding "For now, and for the foreseeable next few years, I think the trade using RMB will predominantly be used for commodity and energy trade."
"China has big influence on the demand for oil and gas," according to the Bank of Communications—China’s fifth-largest lender. "Increasing the use of yuan in pricing, and settling cross-border oil and gas trade will give a boost to yuan internationalization."
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com