By Eol Zari
Russia and China have forged a deal, whereby Russia will get paid in Rinmenbi for the oil export to China. I recall, 2 years ago Putin was in China to close a deal with Xijinping for the supply of Russian Gas via pipelines to China . And coincidentally, it was immediately after this that Obama announced US is the net exporter of oil and gas for the first time.
It was confirmed by my Chinese colleague when I was visiting Beijing in early 2015 that the energy requirement in the north western and western interior cities will be supplied with Russian pipe gas while those several RGTs alone the coastline stretching from Tianjin from the north to Guongzou to the south will receive gas from the imported LNG from several other LNG producers worldwide. Malaysia exports LNG to China via the RGT at Yangsan near Shanghai located at the mouth of Yangtze River. I was fully involved in this project when we delivered the first cargo in late 2009 to this terminal and earlier at the riverine terminal at Wehaggou.
No doubt with the flourishing trade and the growing popularity of China in the international scene and the strength of her economy, Yuan will gain popularity vis-a-vis the US Dollar as a medium of energy purchase settlement. Earlier, Iran has done the same with India by using Rupee as their trade settlement in oil export. Many more will follow suit.
As I have mentioned in my earlier write up, this century will witness the continued growth of oil and gas trading in the Pacific Rim Region.This region alone consumed more than 60 percent of the global LNG supplies. Japan has been the traditional and largest consumer and now China and Korea are increasing their consumption.
With the growing importance of this region as the main consumer of LNG, most producers will focus their sales to this regional market. This will also include the shale derivatives of oil and gas producers in the US coastline of the Gulf Coast of Mexico.
Since, US is now the net exporter of oil and gas from Shale derivatives with it current high level of stockpile, the Middle Eastern countries will find it increasingly difficult to boost their sale to this region. Their saviour will be to the Pacific Rim Region and for this they will have to succumb to the medium of exchange especially with the potential largest consumer, China. Thus, Yuan will be the acceptable medium. Singapore is aiming to become the LNG trading hub for this region with the construction of more LNG storage and the introduction of another aggregator, Keppel besides Pavalion LNG.
The next development I predict will be the pegging of LNG in the price formula. Presently, the resultant LNG price is pegged to the price of JCC, a basket of crudes imported into Japan which is US Dollar based. The next move will be to drift away from this pegging going for more meaningful comparison with other competitive fuels such as coal, LPG, diesel and even geothermal.
This talk to shift the pegging from the price of crude oil has been taking place for several decades in the International Oil and Gas Forum and the LNG Forum. Eventually with this development, the medium of transaction will also shift from Petrodollar to other currencies and the prominent one will be Yuan or even Yen and Won. Time will tell.
E Zari 28 Oct 2016.