The resource-rich Kaitangata area is being targeted by a company which wants to test for coal-seam gas in wells it already owns near the township.
Lime and Marble Ltd has filed a resource consent application with the Clutha District Council.
It wants land-use permission to carry out the testing as part of its exploration and appraisal programme there.
It already holds alluvial mining rights in the area and other parts of Otago.
The company owns wells about 1.25km northeast of Kaitangata and has already drilled seven exploratory holes, completed preliminary economic studies and other research indicating there was merit in conducting more thorough tests.
The preliminary tests identified a large coal-seam gas resource.
The new planned testing will determine if it is "commercially feasible" to establish a coal-seam gas plant in the area.
In its application, the company said the wells were close to the Kai Point Coal Mine road.
The site had gentle rolling hills which were, until recently, covered in dense pine forest.
The first phase involves the drilling of five wells followed by the production testing of water and gas, which will include the flaring of gas to determine the water and gas-production profiles.
The third and final phase involves the commercial production of gas to be distributed to the market.
The company said the operation at Kaitangata mainly involved taking groundwater from the wells, which then allowed gas to flow to the surface.
The groundwater will be discharged into an un-named drain nearby.
A centrally located silenced diesel and dual-fuel generator, including fuel, will be located on site to supply power.
If coal-seam gas from these wells exceeds requirements, it will be flared until this part of the programme is finished.
"The period for flaring will be kept to an absolute minimum as this is a valuable resource for the company."
Its assessment of environmental effects suggested the impact of the operation on the environment would be minor.
"However, for the sake of clarity, the site has been selected because it is a suitable location to extract the gas resource and it is a remote location. Hence, a number of adverse effects are avoided for these reasons."
Clutha council planning and environment manager Murray Brass said the application was still "in the system".
It was unlikely to be publicly notified.
