WESTERN Australia is on track to have its first underground coal...

WESTERN Australia is on track to have its first underground coal gasification project, Cougar Energy and Eneabba Gas having struck a deal to power the resources sector in the state.

According to Cougar Energy, it has signed a memorandum of understanding with Eneabba Gas for a joint venture to develop a UCG project to supply so-called syngas to a potential new power station in the Mid West. Each party will have a 50 per cent interest in Eneabba's Sargon coal tenements in Western Australia.

Cougar Energy managing director Len Walker said the Sargon tenement coal resource near Dongara showed good potential for a long-life UCG project.

"The economic growth outlook for Western Australia is positive, driven by the expansion of the resources sector," he said.

"Similarly, in the Mid West of the state, we are seeing a number of resources projects announced, which will have significant electricity requirements and can be ideal long-term customers."

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The companies are planning further work on the coal tenements to estimate the size of the potential UCG project.

UCG is slowly emerging as a new coal industry.

The focus for the emerging technology has been Queensland, where three pilot projects are planned, but the Cougar deal could allow Western Australia to take an important role in the sector.

The West Australian Department of Mines and Petroleum has circulated a paper about aligning UCG legislation within the Mining Act 1978 for Western Australia.

"The review of our Sargon tenements was focused on identifying a partner capable of not only developing the UCG potential of the project technically but also a party that had the corporate acumen to deliver a suitable long-term commercial outcome that was favourable to the company and its shareholders," Eneabba managing director Mark Babidge said.

Shares in Eneabba Energy rose on the news, closing 11.43 per cent higher at 20c.