Cougar Energy Ltd has announced Monday that it sealed a deal with China's Inner Mongolia Qi De Investment Co Ltd to jointly-develop an underground coal gasification (UCG) project site deep in the Inner Mongolia region of China.

With its Singapore-based Direct Invest Pte Ltd, the energy company signed a letter of intent with Inner Mongolia to convert coal into gas through UCG process which the company said can be utilised as fuel for power generation or conversion for use in making petrochemical products.

Cougar said that the Chinese company is privately owned and has access to substantial coal deposits in the area to be developed as it added that the letter contains "the intended commercial arrangements to develop the UCG project and sell the gas production."

The energy company pointed out that an offtake deal for the gas will be facilitated with a third party power utility company which will be responsible for funding, building and operating the electricity generation facility and first production output is expected by the latter part of 2012.

Company managing director Len Walker revealed that the project is China's first UCG facility to be built, adding that "Cougar Energy is set to bring our know-how and experience to these markets and we are currently assessing with several Chinese parties how to integrate UCG projects as part of their traditional coal mining operations."

Like Australia, China has been dependent on coal for its power and industrial needs but has been lately pouring efforts to explore more environmentally friendly power generation.

Cougar's flagship project is the Kingaroy power facilities located in Queensland, which has been plagued by delay in ignition and gas production due to well blockages discovered during the plant's initialisation in March.

The company has announced that re-ignition will re-commence either by the end of June or first week of July as it gave assurance that the facility should be online after then.