Solid Energy says that gas produced from burning coal deep underground in Waikato will help boost New Zealand's energy security.

The company hopes to start drilling within weeks into a coal seam north of Huntly in the pilot project that could produce enormous quantities of synthetic gas that could be used to generate electricity or higher value products including methanol, synthetic transport fuel, fertilisers or waxes, plastics and detergents.

Solid Energy's underground coal gasification (UCG) project manager Steve Pearce said there was about one billion tonnes of coal in the Waikato, most of which was inaccessible.

"We think it's hugely important - if this works you could have multiple UCG plants operating. It adds to New Zealand's energy security giving us another source of primary domestic energy."

He likened the potential of the UCG process in Waikato to Southland's lignite reserves which by some estimates could provide energy and feedstock for most of the country's transport fuel and petrochemical needs for the next 300 years.

The process has been successfully used in Uzbekistan for decades and there are three projects running in Queensland and another in South Africa.

It involves pumping air into a coal seam hundreds of metres deep which is ignited with hot coal and then burns at temperatures up to 1000C.

The air, heat and pressure from being deep underground initiate a reaction which turns the coal into syngas which is released up another steel-cased well.

Gas rich in hydrogen and carbon monoxide are captured at the well head where they can be processed. During the $22 million trial over two years it will be burned off.

"There is no chance of uncontrolled fire because we're pumping down high pressure air. As soon as we shut that off the water floods in and that puts it out."

Solid Energy is working with Ergo Exergy, which has developed the technology in several countries.

The project will pick up on work done in 1994 by ECNZ near Huntly.

During that trial the process was successfully proven and a business plan developed around supplying gas to the Huntly power station.

However, with Maui gas relatively cheap then, the numbers did not stack up but they had changed even taking into account carbon charges.

"With the gas prices we think UCG gas will be competitive in the market."

Pearce said underground coal gas would sit between coal and natural gas in attracting carbon charges.

Because the Waikato's coal fields were well understood there was minimal exploration risk.

"This is where it differs from oil and gas. Our focus is not so much on finding the resource but proving the technology to extract it in an economic manner."

For the pilot plant, sited on private farmland, Solid Energy plans to drill up to seven wells about 25m to 50m apart into an underground coal seam 400 metres below the surface.

A number of other wells were also being drilled to gather environmental data.