Anglo-Dutch energy giant Shell has signed a $5bn (£3bn) deal to build an energy plant in the Gulf state of Qatar to convert natural gas into liquid fuel.
Eventually Shell says car drivers should be able to fill up at petrol pumps,
Gas to liquid, or GTL technology, produces cleaner fuel, according to Shell.
The energy giant signed the agreement with state-run firm Qatar Petroleum.
"Together they're planning to create a plant in this tiny desert state which is the largest of its kind in the world," said BBC News correspondent in Qatar, Julia Wheeler.
The agreement was signed by Shell chairman Sir Philip Watts and Qatar's Energy Minister Abdullah Hamad Al-Attiya.
"Shell will be building the first world scale gas to liquid projects, " Sir Philip told BBC Radio 4's Today programme.
"Qatar is supplying the gas; Shell is to supply the technology," said Ms Wheeler.
The plant will eventually produce around 137,000 barrels of liquefied fuels per day by the time it comes fully on stream by the year 2011.
The Qatar plant will produce both naphtha and environmentally friendly diesel and is being billed as capable of creating a green revolution for car drivers.
Also known as white crude, Shell insists fuel converted from liquid gas is significantly more environmentally friendly than traditional petrol or diesel.
But the refining process does produce the carbon dioxide omissions which are blamed for global warming.
"With current technology, over the full life cycle, this will be carbon dioxide neutral when compared with other technology," Sir Philip said.
"Over time, not only will these projects be cheaper, they will also be more environmentally friendly."
Buses and cars
At first the target is for buses in big cities to use the new fuel because they can be filled up at central depots.
Eventually Shell says car drivers should be able to fill up at petrol pumps, but this requires huge volumes of so called white crude.
For the tiny desert state of Qatar, business is good. Last week the energy minister signed a $12bn deal with Shell's rival, Exxon Mobil.