In a twist to local greenhouse gas capture schemes, Mr Blood plans to limit emissions from the project by selling carbon dioxide to Montana oil projects to inject into their fields and improve oil recovery.
If all goes to plan, the project will be profitable at oil prices above $US60 a barrel and could be producing 50,000 barrels daily by 2016.
Mr Blood also has plans to develop a coal-to-urea plant in Victoria's La Trobe Valley.
The deal inked last week, calls for the Crow Nation to provide coal and water, and Mr Blood's unlisted Australian American Energy Co will provide funding and project management.
The coal will be mined above ground and converted to diesel using processes similar to those of South African synthetic fuels company Sasol.
Sasol's process produces more than twice the greenhouse emissions of a normal oil refinery, but the Montana project, known as Many Stars, will minimise these by either storing CO2 or selling it to nearby oil producers.
"We're hoping to sell all the CO2 that gets trapped, as a by-product," he said. There were more than 8000km of dedicated CO2 pipeline in the US, he said.
Both the Crow Nation and Montana Governor Brian Schweitzer gave the project a glowing appraisal.
"The Many Stars project will be a significant contributor to our nation's need for energy security and has the potential for providing superior military fuels to nearby bases," said Mr Schweitzer, who introduced Mr Blood to Crow Nation members after meeting him at a New York conference in 2007.Crow chairman Carl Venne said the project would help his tribe become self-sufficient and would provide employment opportunities. Mr Blood sold a coal-to-liquids project in Victoria to miner Anglo American for an undisclosed sum earlier this decade.
The project, known as Monash Energy, is being jointly developed with Shell and could cost $6 billion. It is expected to be atleast 10 years before the operation will be in production.
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