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A similar process to that used to get the caffeine out of coffee is likely to be used to extract oil from Southland lignite.
State-owned Solid Energy has signed a $15 million deal with privately-owned Australian company Ignite Energy Resources to convert "low energy feedstocks" such as lignite into high-grade coal and synthetic crude oil.
IER chief executive and bio-chemist Dr Len Humphreys told the Otago Daily Times yesterday the company was already operating a pilot plant at Somersby, in New South Wales, which used "super critical" water to break down the polymers in lignite.
He described "super critical" water as the fourth state of matter after solids, liquids and gases - created by heating water beyond 350degC under more than 24,000kPa of pressure.
"At that point its behaviour changes absolutely completely ... in that state super critical water becomes a very aggressive chemical."
Dr Humphreys said the water "depolymerizes" lignite by removing the oxygen from it.
"It's the oxygen in the lignite that makes it a very low-ranked energy material."
He said as far as he was aware, his company was the only one in the world that had been able to "harness" the process in a "very simple but very effective continuous flow process".
He likened the process to that used for decaffeinating coffee which used super critical carbon dioxide.
"Everybody who drinks decaffeinated coffee around the world has been depending on supercritical carbon dioxide to remove that caffeine."
It was also used in the pharmaceutical industry and, in Europe, to remove contaminants in waste material.
Ignite energy claims that a tonne of lignite worth $US12 per dry tonne can be converted, in its reactor, into two barrels of oil, worth $US135 and 0.6 tonne of "upgraded coal" worth $US54 (November 2008 figures).
The first commercial plant was to be built on the lignite fields of the Latrobe Valley of Victoria but simultaneously, the company would build modules for Solid Energy.
Some engineering work would be done in New Zealand.
Solid Energy has yet to determine where the "commercial pilot" plant would be built, but Dr Humphreys said it was "critical" for it to be at the lignite source.
Dr Humphreys said "one of the motivations" for the plant being built in Victoria was the expectation that CO2 emissions there could be reduced by more than 50%.
"There's a massive environmental benefit for lignite power stations."
Dr Humphreys is one of the inventors of the technology and a founder of Ignite Energy.
Solid Energy is investigating several other technologies for using Southland lignite.