State-owned coal miner Solid Energy and southern fertiliser co-operative Ravensdown will investigate building a $1.5 billion urea fertiliser plant near Gore to make use of the area's vast reserves of lignite and potentially create 500 jobs.
It is the second multibillion-dollar project being considered for the Eastern Southland region, with Solid Energy also considering building a $10 billion coal-to-diesel plant.
Solid Energy chief executive Don Elder said if the urea plant went ahead, a separate jointly owned company would be formed to run the business, which would produce enough urea fertiliser to meet New Zealand's needs and produce product for export.
Dr Elder said Solid Energy had spent more than $60 million in the past few years buying about 2000ha of land on and around the Mataura and Croydon coalfields in anticipation of utilising their potential, identified as far back as the 1950s.
The quality of the coal in the two fields, their size, ease of mining and proximity to infrastructure made them superior to Southland's seven or eight other coalfields, he said.
They would meet the needs of the two proposed plants for more than 200 years.
New Zealand has the second-largest coal reserves per head of population in the world, and Dr Elder said with China building several coal-fired urea plants, it made sense for New Zealand to use its resources and build its own, rather than importing product from China.
Ravensdown chief executive Rodney Green said New Zealand imported about 500,000 tonnes of urea a year from the Middle East and China, and a new plant would meet those needs and produce another 750,000 tonnes a year for export, worth about $1.5 billion.
Mr Green said in an interview New Zealand's economic future lay in using its coal and water reserves, and this project epitomised the direction he said New Zealand should take.
"If there is something to build wealth in New Zealand, this is the ideal project."
The country's other large fertiliser co-operative, Ballance Agri-nutrients, operates New Zealand's only urea plant at Kapuni, in Taranaki, which it estimated supplied 40% of farmers' needs.
Dr Elder said if the Southland plant went ahead, it would use the latest technology, including integrating carbon capture, making it cleaner than conventional coal-fired boilers.
The feasibility study would cost several hundred thousand dollars and be completed early next year, at which point it would be at the same feasibility stage as the coal-to-diesel project.
The ground would be slit-mined, 20m to 100m deep, with the soil and fill from freshly mined areas used to refill areas that had been mined, and would be returned to farming.
Mine areas would be shielded by trees and look like large gravel quarries.
Dr Elder was confident the project would get resource consent, saying Solid Energy had had the consent process for all its plants peer-reviewed to pinpoint any "show-stoppers", and none had been identified.
If the two projects proceeded, the coal-to-urea plant could be in production by 2014 and the coal-to-diesel plant by 2016.
