New Delhi: China, the second-largest economy in the world, struck a historic $60 billion agreement with Qatar to purchase liquefied natural gas as part of a long-term effort to strengthen its energy security.

The state-controlled businesses declared in a virtual ceremony on Monday that Qatar Energy will start sending Sinopec 4 million tonnes of LNG annually beginning in 2026. According to information from BNEF, the arrangement will extend for 27 years, making it the longest LNG supply agreement with China to date. In terms of volume, it’s also one of the biggest in the nation.

Prices are rising as nations from all over the world compete to buy heating fuel and power plant fuel from big producers like Qatar and the US. The supply of LNG on the world market has nearly reached its limit, and little fresh production is expected to start up before 2026.

Europe is attempting to switch from Russian pipeline gas to LNG, but negotiations with Qatar have stagnated because countries like Germany are hesitant to sign long-term contracts. Many EU nations want to phase out fossil fuels and think that signing LNG deals would undermine their efforts to reduce global warming.

Despite the fact that China’s imports of LNG have decreased this year as a result of the government’s tough zero-covid policy, demand is anticipated to increase again as early as 2023. The biggest LNG importer in the world last year was China, whose state-owned purchasers have been busy negotiating supply agreements with producers.

The North Field East project, which would cost Qatar and investors including Shell Plc and Exxon Mobil Corp. roughly $30 billion, will provide the gas for Sinopec. For the project to increase Qatar’s annual LNG production capacity from 77 million tonnes to 110 million tonnes in three years, this is the first supply arrangement.

Together with MA Yongsheng, chairman of Sinopec, Saad al Kaabi, Qatar’s energy minister and head of QE, signed the contract. According to calculations by Bloomberg, the transaction is worth about $61 billion, or $2.3 billion per year, or at current pricing for long-term contracts.

It will “further solidify the excellent bilateral relations” between China and Qatar and “help meet China’s growing energy needs,” al Kaabi said.

About $15 billion more is being invested by Qatar on its North Field South expansion. This is expected to be completed by 2027 and will increase the nation’s capacity to 126 million tonnes annually.