Latvia is required to increase the share of energy produced from renewable sources. This study is focused on the potential of biomass gasification in the production of energy for the purposes of district heating. This study describes an innovative technology for syngas production from wood chips. The sensible heat of the produced syngas was used to dry wood chips. Gasification plant was tested at various capacities with and without air flow separation at the primary and secondary flows. Syngas composition, temperature in the gasifier, syngas temperatures, char heating value and several other parameters are measured and analyzed. The energy balance of the gasification process is calculated and presented. Results show that air separation causes growth in the efficiency of the gasification process.