Swansea Bay is one of four UK locations identified as potential sites for coal gasification projects
The UK's Coal Authority has approved a bid by a company to investigate whether underwater coal seams off the Welsh coast could be used to produce gas.
The Clean Coal Company wants to use offshore drilling techniques in Swansea Bay.
In a process called gasification, coal is turned into a gas underground, which can then be used as a fuel.
The company says that initial investigations will have no detrimental impact on marine life in the bay.
According to Clean Coal, this would be the first time that the gasification of underground coal would be potentially available to the UK energy market.
The gas extracted in the process can be used to power electricity generating turbines, industrial heating, or used in jet and diesel oil production.
The company says initial studies in Swansea Bay suggest there are underground coal reserves of around 200m tonnes - enough it claims to potentially provide all the energy needs of Swansea for 30 years.
Rohan Courtney, chairman of Clean Coal Ltd said: "Recent developments in directional drilling technology and the growing need for new, secure and environmentally benign sources of energy means that underground coal gasification now merits serious investigation.
The process of underground coal gasification works by pumping a mix of water and air or oxygen in to a coal seam, through a borehole.
The coal is burnt underground, and the gas produced in the process can then be used as a fuel.
Supporters of the process say immediate benefits include no need for traditional mining.
"This is an exciting and commercially viable development which can bring significant long-term benefit to south Wales."
Swansea Bay is one of five locations identified by the Coal Authority that will be surveyed by Clean Coal for potential energy use.
The other sites are in Dumfrieshire in Scotland, at Cromer in Norfolk, Humberside and Sunderland.
The Swansea Bay site stretches over 50 sq miles (80 sq km), with survey boreholes being drilled at depths of up to 0.7 miles (1.2 km).
"We plan to start our investigations in the first half of next year and will be hosting a public exhibition before we start our work," said Mr Courtney.
"With the work being carried out deep below the surface, our work should largely go unnoticed but we are keen to share our plans beforehand, explain the process of underground coal gasification and outline the potential benefits to the local economy.
"It's an exciting development."
Neil Crumpton, energy campaigner for Friends of the Earth Cymru, said that the organisation was supportive of the project in principle.
He said: "As long as no danger was posed to marine wildlife, and all the CO2 produced by any gasification of the coal seam was fully captured and stored underground, then it's definitely a potential source of energy that should be looked at."