Wellington, Sept 7 NZPA - Auckland technology start-up company Lanzatech says it has signed a deal with one of the largest coal producers in China, Henan Coal and Chemical Industrial Corporation (HNCC), to turn carbon-risch gases from coal into ethanol fuels and chemical.

"Our partnership with Henan Coal and Chemical and the Chinese Academy of Sciences will help reduce the CO2 footprint of China's coal industry," said Lanzatech chief executive Jennifer Holmgren.

The company wants to produce ethanol fuels and chemical products through the integration of coal gasification and Lanzatech's biological fermentation process.

A viable process could answer key concerns for fossil fuel companies such as coal miners that want to produce hydrogen-based gas fuels but need to dispose of the carbon from their product to lower its climate-change footprint.

Solid Energy, which is looking at gasification of lignite deposits in Southland, is reported to have considered expensive ways of sequestering the waste stream of unwanted carbon, including re-injecting it into any oil wells which may be drilled in the Great South Basin.

Lanzatech held an initial capital-raising in 2007 and produced ethanol at a New Zealand Steel mill in Auckland using waste gases as evidence of its technology.

In July, it raised $US18 million (then $NZ24.5m) from Qiming Ventures and Softbank China Venture Capital which joined initial LanzaTech investors, US-based Khosla Ventures and NZ's K1W1. That China-backed financing followed LanzaTech's agreement with Boasteel, China's largest steel and iron conglomerate to commercialise its technologies for producing ethanol from steel mill off-gases.

The latest memorandum of understanding was signed during a ceremony held in the capital of Henan province, Zhengzhou.

Also signed was a separate three-way letter-of-intent for establishment of a bio-energy research centre for the development, pilot production and commercialisation of the technology to change coal-derived synthesis gas to ethanol fuels and chemicals.

The research centre, supported by multiple research institutes, will focus on developing complementary process technologies, such as product separation, water conservation and process integration.

A demonstration plant will be operational by the second half of 2011, according to Dr Holmgren, and the company's co-founder Sean Simpson has said that will be followed by a commercial facility producing over 200 million litres of ethanol a year.

Early adoption of the technology would enable China to become a leader in green energy manufacturing and use, Dr Holmgren said.

Henan Coal and Chemical Industrial Corporation is a China fortune 500 company, ranked as China's second-biggest coal company, with a diverse portfolio including coal, chemical and non-ferrous metal industries. It is the biggest company converting coal to syngas in Asia.