A coalition of Silicon Valley investors is funding a company that modifies bacteria to produce oil.

LS9 Inc has genetically modified E Coli so that when it consumes organic products like wood chips or wheat straw it excretes crude oil.

The venture is being funded by investors including Vinod Khosla, co-founder of Sun Microsystems.

"Our Renewable Petroleum technology can dramatically change global carbon flow, and empower an agriculturally-based fuel economy," said LS9 president Robert Walsh.

"It will decrease the political tensions posed by scarce fossil reserves, and accelerate the widespread adoption of renewable transportation fuels."

The company was set up by Dr Chris Somerville, director of the Carnegie Institution and professor of plant biology at Stanford University, and Dr George Church, director of the MIT-Harvard US Department of Energy GTL Center and professor of genetics at Harvard.

"Thanks to rapid advances in industrial biotechnology and synthetic biology, along with the strength and talent of our scientific team, LS9 is uniquely suited to design, develop and commercialise the next generation of biofuels," said Professor Somerville.

Professor Church added: "We have looked to nature to identify the required biological tools, redesigned them to function under industrial conditions and optimised their performance to meet our economic objectives."

Naturally occurring E Coli produces fatty acids which are similar to crude oil. The genetic modification required is relatively simple, and the new organism produces crude oil which needs minimum refining.

The company claims that the final oil product, known as Oil 2.0, is actually carbon negative, since the carbon it produces is less than was extracted from the atmosphere by the growing medium.