Wellington, Sept 25 NZPA - State owned coal producer Solid Energy and fertiliser company Ravensdown are investigating the building of a lignite-to-urea plant in eastern Southland.

The plant would cost more than $US1 billion ($NZ1.41b), using the region's world-scale lignite resource and making this country self sufficient in urea, and potentially an exporter, the two companies said in a statement.

The study would consider the economics and possible location of a plant producing up to 1.2m tonnes a year of urea -- a nitrogen fertiliser used to enhance grass growth -- from up to 2m tonnes a year of lignite.

At last year's urea prices, of up to $US800/tonne, such a plant would have generated the equivalent of about $1.5b a year in export equivalent revenue through a combination of import replacement and direct exports, the statement said.

Up to 500 new jobs could be created.

The study was expected to be finished early next year, when the two companies would decide whether to proceed to the next stage of a feasibility study.

Following engineering design, and subject to consenting and financing, building could start by 2012, with the plant possibly operational by late 2014.

Solid Energy chief executive Don Elder said urea was mostly imported now, exposing this country's farmers to world supply volatility, and prices that could fluctuate widely.

The lignite-to-urea study was running in parallel with existing work to investigate producing diesel from lignite.

Developing a urea plant before building a lignite-to-diesel plant would allow New Zealand to have advanced gasification industry competency and capabilities in place at an earlier stage, to substantially facilitate further and larger developments, Dr Elder said.

Alternatively the two developments could take place in parallel and form the basis of a "syngas park", supplying clean syngas to multiple downstream applications including diesel and urea.

It was expected a lignite-to-urea plant would be fully carbon compliant from day one, Dr Elder said.

Solid Energy was already investigating a range of options for managing carbon dioxide emissions from the planned coal-to-liquid plant including carbon capture and storage, biosequestration and biofeedstock options.

Ravensdown chief executive Rodney Green said urea was produced worldwide using either coal or gas as a feedstock and using well-established technology. In this country some urea was made in Taranaki using natural gas.

New Zealand imported about 500,000 tonnes of urea a year, mostly from the Middle East and China, he said.

An additional New Zealand production facility would allow the country to be self sufficient in urea and in addition export up to 750,000 tonnes a year.

NZPA