I've been trying to figure this out myself. I remember it was used in a previous quest as well. I'm holding on to that herb as well as the diary just in case it is to be used in a future quest.
What I'm wondering is.. remember this from the last release?
Apparently these strange creatures have extended bodies, a slimey appearance, narrow eyes and go down well with lots of strong flavoured drink
I'm wondering if the herb might be used with the eels in some way?
Or another possibility is that it has something to do with building the temple.