The approval gives the green light for existing oil shale operator Queensland Energy Resources Ltd. to move its trial plant at Gladstone to the commercial stage.
Queensland Natural Resources and Mines Minister Andrew Cripps says the state has about 90 percent of Australia's known oil shale resources, equivalent to about 22 billion barrels of oil.
"As the world supply of conventional crude oil diminishes, there are strong prospects for oil shale to become the next major source of liquid fuel supplies in Australia, and Queensland is well placed to lead that charge," Cripps said in a statement Wednesday, announcing the resource approval.
Last year, Australia's oil production fell 14.5 percent to 484,000 barrels a day, the lowest level since 1983, as conventional fields became depleted, says a BP study. Australia consumes just less than 1 million barrels of oil a day, with the country producing less than half of that.
Queensland's shale sector has the potential to create thousands of jobs across the state and provide a huge royalty stream into the future, Cripps said.
But Cripps said that an existing 20-year moratorium on developing the McFarlane shale-oil deposit near Proserpine in central Queensland would continue until 2028.
While QER will be able to proceed directly to commercial production, Queensland Environment Minister Andrew Powell said strict environmental controls would apply to any proposal to mine and process oil shale.
"We will consider these proposals on their merits and require a trial stage to determine the feasibility and environmental performance of any unproven technologies," Powell said, noting that QER's pilot plant near Gladstone has successfully demonstrated the viability of its processing technology.
While it didn't provide a time frame, QER says the government's approval of its project is just the first step toward long-term viability.
"We'll be taking a careful step-by-step approach," QER spokesman John Hewitt was quoted as saying by the Australian Broadcasting Corp.
The Queensland Resources Council, the peak industry association representing the commercial developers of Queensland's minerals and energy resources, applauded the decision, saying it was a significant step forward in the realization of Queensland's potential as a global energy hub.
"The inherent value in being able to convert Queensland's vast shale deposits into ultra-low sulfur liquid fuels can be weighed simply against forecasts that Australia will be importing $30 billion worth of liquid fuels by 2015," council Chief Executive Officer Michael Roche said in a statement.
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