Engines burning aluminium and liquid oxygen have been investigated for use on the moon because there is plenty of both elements in the soil - about 13% and 40% of highland soil, respectively. Propellant thus has the potential to be sourced from the moon directly, but it isn't practical unless a refining process can be found that uses the moon's environment to extract pure aluminum efficiently using local resources. A viable way to extract the oxygen is known already, using a pyrolysis process.
Is there a way of taking advantage of the moon's environment to do this effectively? You have at your disposal:
- A hard vacuum
- A month-long day that is strong sunlight for two weeks then a two week night - it is estimated that a furnace using concentrated sunlight could reach 3000 K.
- 1/6 Earth gravity
- No moisture - chemicals are reduced
- Powdery soil that is loose to a depth of 10 or 15 cm
- Some soil samples from Apollo 16 were a quarter alumina by weight
A source of fuel in space is a prerequisite for a larger ongoing human presence there. A rocket launched from Earth can't manage to be more than about 5% payload. Shipping fuel from Earth to any off-world base by rocket would be prohibitively expensive (even if the rocket is reusable). This is why there has been so much interest in sources of water ice in space - it can be electrolysed into liquid hydrogen and liquid oxygen, which makes excellent propellant. But you have to go to the asteroid belt to get it (there are indications there might be significant reserves in craters at the moon's poles in permanent shade, but this is inconclusive). Once there is a way to refuel in space, all sorts of things become possible that are beyond our reach right now. An option that can compete with the price of mining asteroids has business potential. All such undertakings are going to require vast initial outlays that won't pay off for a decade or more. The process being considered here only has to meet that standard.
This question is a partner to a question at SE's Space Exploration site - How feasible is it to use aluminum and liquid oxygen as future propellant sourced from the moon?. I realized it was largely a chemistry question and so decided to ask about it here. There are two references in the other question: one from Wickman Spacecraft & Propellant, and one from the Artemis Data Book. I'm afraid neither discusses the chemistry and I haven't found anything else. The AIAA has several papers on it in their catalogue.