Small natural gas cogeneration engines frequently operate with lean mixture and late ignition timing to comply with NOx emission standards. Late combustion phasing is the consequence, leading to significant losses in engine efficiency. When substituting a part of the excess air with exhaust gas, heat capacity increases, thus reducing NOx emissions. Combustion phasing can be advanced, resulting in a thermodynamically more favourable heat release without increasing NOx but improving engine efficiency.In this work, the effect of replacing a part of excess air with exhaust gas was investigated first in a constant volume combustion chamber. It enabled to analyse the influence of the exhaust gas under motionless initial conditions for several relative air-fuel ratios (λ = 1.3 to 1.7). Starting from the initial value of λ, the amount of CH4 was maintained constant as a part of the excess air was replaced by exhaust gas. Temperature of burnt and unburnt mixture, combustion velocity and others were analysed for varying EGR rates.In the next step, cooled exhaust gas recirculation was employed for a single-cylinder cogeneration engine to evaluate the influence of EGR rates up to 25 % on engine performance and emissions. For the baseline compression ratio of 13.2, a slightly higher IMEP could be achieved coupled with lower ISFC (almost -5 g/kWh) at constant NOx emissions. Subsequently, the compression ratio was raised to 15.25 and the trials repeated, showing further improvement with the drawback of higher knock tendency.