Solid Energy has begun a study on extracting lignite in Southland for use as a solid fuel.
Eastern Southland has an estimated three billion tonnes of lignite.
An official at the state coal mining company says the scheme is still being studied.
At this stage, the study is a desk-top process only. However, if it proves practicable, lignite could provide 100,000 tonnes of thermal fuel for industry each year.
So far, Solid Energy has focussed research on using lignite to manufacture diesel, which is about 10 years away.
Lignite is a soft substance, midway between peat and coal.
