The Brisbane-based company said on Friday the joint study would evaluate the GTL project against the current and alternative energy options available for Alcan’s Australian operations.

Arrow said the companies would then decide whether to do a more detailed study.

If a GTL plant was to proceed it would use gas from Arrow's coal seam methane activities in the region.

The GTL process can be convert gas to a variety of liquids using a technique that uses a catalyst to create a synthetic crude oil. The “syncrude” can then be treated in the same way as regular crude oil in a refinery to create high-end distillates such as gasoline or clean diesel.

GTL diesel is said to offer lower greenhouse gas emissions than petrol without the high sulphur and particulate emissions of conventional diesel. It is also compatible with existing diesel engines and distribution systems.

Earlier this year, chief executive Nick Davies told InvestorTV.com.au that he expected future margins from selling gas into the electricity market to be tight, due to an oversupply of electricity and relatively low domestic coal prices.

“We are going to concentrate on higher margins, in particular, we are going to look at different products from gas,” Davies said.

“Those products could be anything from compressed natural gas, small-scale liquefied natural gas, gas-to-liquids or environmentally advantaged power generation using environmental credits.”

The feasibility study is expected to be finished in early 2007.