The decision - to use technology developed by US-based Rentech, Inc. - is a major boost for the Australian proposal to build a $500 million coal-based gas to liquids plant at the Hazelwood brown coal deposits at Morwell in Victoria's La Trobe Valley.

Colorado-based Rentech announced in August it was part of a consortium led by unlisted public Australian company, GTL Energy Ltd, to develop a gas to liquids project at Hazelwood. Mr Dennis Yakobson, the President and Chief Executive Officer of Rentech, Inc., is also a Director of GTL Energy Ltd.

It has been announced in the US that Clean Coal Power Resources Inc (CCPRI) of Kentucky had chosen the Rentech technology to produce ultra clean diesel from coal at its $2.5 billion southern Illinois project - potentially the largest commercialisation yet of the Rentech process.

The ultimate size of the Illinois project is 190,000 barrels of naphtha and clean diesel fuel a day, from 40,000 barrels per day planned to be produced by 2007 under Phase 1.

"The Hazelwood project is now expected to be a major beneficiary of the CCPRI decision," GTL Energy's chairman, Robert Kennedy, said.

"The Illinois plant is expected to be constructed during the period in which process optimisation studies for Hazelwood are to be undertaken," Kennedy said.

"That is a unique and vital set of circumstances. Hazelwood will be using the same technology and producing the same end products as this large US plant and will be able to take full advantage of the experience gained during the development of the Illinois project."

GTL Energy has licencing commitments in Australia with Rentech and has developed its own technology to pre-treat low grade coal ready for gasification.

It plans to employ this technology to convert coal from the brown coal open cut mine at Hazelwood into a suitable feedstock for producing synthetic gas.

The synthetic gas would be processed via the Rentech technology to produce an estimated two million barrels a year of high quality, sulphur-free diesel, and about one million barrels a year of naphtha from a throughput of 4,500 tonnes of coal per day.

The estimated cost of the Hazelwood gasification and gas-to-liquids plant is approximately $500 million, with initial plans based around project completion by mid-2008.