An Australian company has begun testing technology that generates power from coal while leaving the coal underground.

Cougar Energy is developing an underground coal gasification (UCG) project 10 km south of Kingaroy, in southern Queensland.

UCG is the process of extracting coal from the ground through its transformation into a combustible gas for power generation. It can also be used in the production of diesel, fertilisers or chemicals.

Cougar managing director Len Walker said UCG Syngas from underground coal seams was estimated to be up to 50 percent cheaper than natural gas.

The company's manager-UCG projects John Henderson said fuel efficiency was also high with 75 percent of the energy content of the coal being retrieved compared with only 5 percent from coal seam gas extraction.

"It has a low environmental footprint and is the safest method of extraction, with no open cut or underground mining required, and minimal ground disturbance and waste water production," Henderson said.

Cougar will have a feasibility study underway by the end of the year and plans to commission a pilot program in the first quarter of 2010.

Henderson said if the project was successful it could lead to the establishment of a 400MW base load power station - capable of producing power for around 400,000 homes over 30 years.

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