Chevron Corp is building a solar plant to create the steam that boosts production at an aging California oilfield, in a pioneering project the company aims to replicate elsewhere if it works.

Chevron outlined the previously undisclosed plan at a city council meeting in Coalinga, a city halfway between Los Angeles and San Francisco that started as a coal outpost, boomed with oil gushers, and is now a potential solar energy hub.

The second-largest US oil company said the solar thermal plant, which will collect reflected sunlight from thousands of mirrors at a 323-foot (98-meter) tower where the water boils, will replace some steam production currently powered by natural gas.

Steam is injected into wells to heat up heavier oil and thus lower its viscosity to make it easier to extract.

Sergio Hoyos, a business developer at Chevron Technology Ventures, said construction of the Coalinga plant would begin this year, with production slated to start by the end of 2010.

"The only problem we have is when it's cloudy," he said to a few laughs at the city council meeting on Thursday night.

Although he said solar thermal could never replace natural gas in steam production, it is an opportunity for Chevron to save energy while championing a technology tipped by some as a winner in the long run.

Just this week, German solar thermal company Solar Millennium and plant builder MAN Ferrostaal announced that they have joined forces to capture a chunk of the growing U.S. solar thermal power market.

The Coalinga plant will cover 100 acres (40 hectares) of Chevron-owned land with more than 7,000 mirrors.

Hoyos said Chevron would consider deploying the solar thermal system, which will be the first of its kind to produce steam for oil production, at larger fields if it is successful.

Chevron Technology Ventures, which sells solar power and energy efficiency services, studied the Coalinga site for a year and a half before deciding it would cause a limited environmental impact and take advantage of the area's high solar radiation, Hoyos said.

He also cited the topography of the area, a parched stretch of flatland nestled against hills on the western edge of California's agriculture-intensive Central Valley.

While the Chevron project will not produce electricity, it is another vote of support for solar in an area that is near the grids of two big utilities, PG&E Corp's Pacific Gas & Electric and Southern California Edison.

Last year, PG&E contracted with a unit of Portuguese conglomerate Martifer for 106.8 megawatts of power from both a solar thermal plant and natural gas produced by agricultural waste at plants near Coalinga -- also known for its cattle.

The city of 18,000 people wears its oil history on its sleeve.

Just a block from where Hoyos spoke is a Richfield gasoline filling station built in 1934 that has been restored and fenced off for posterity.

The city's name is derived from the railroad's Coaling Station A, and after the initial coal boom, a series of gushers more than a century ago heralded its emergence as one of California's biggest oil-producing areas.

But based on the latest figures, the Coalinga field has had more than 90 percent of its oil extracted since its discovery in 1890, leaving plenty of work for steam injection. – Reuters