Challenges and solutions to coal gasification and liquefaction in India

Coal gasification and liquefaction refer to the process of converting coal into Synthetic Natural Gas (SNG) and liquid fuels, respectively. These technologies are crucial for India to use the vast coal reserves of 300 billion tons in a cleaner and sustainable way. They can be used to produce methanol and other petrochemicals, such as ethylene, propylene and acetic acid. Therefore, these technologies will contribute to the import substitution of coking coal (in the steel industry), oil, gas, methanol, ammonia, urea, etc., further leading the country towards self-reliance in the energy sector. For example, India imported ~90 percent of its methanol requirements and ~25 percent of its urea requirements in FY22 due to higher landed costs on natural gas as a feedstock.
Coal gasification is already an established industry in China. China’s coal-to-chemicals industry consumes ~200mmt of coal. This accounts for ~90 percent of the country’s ammonia and 70 percent of methanol production, both generated through coal gasification.

In 2021, the Indian government released a mission document, outlining its commitment to achieve 100 million tons of coal gasification by 2030. In 2024, the Ministry of Coal invited RFPs for setting up coal gasification projects. However, this segment is facing several challenges, such as high capex intensity, availability of a limited number of technology providers locally and ambiguity of a robust business case. Coal gasification is effective for coal with low ash content (up to 25 percent) contrary to India’s high ash content coal (40 percent or more). Therefore, locally developed coal gasification technologies are more suitable than Western models. Recognising these challenges, the government has announced INR85 billion (~US$1.1 billion) incentive towards coal gasification projects with a focus on indigenous technology development. The coal ministry has also introduced a policy offering a 50 percent rebate in revenue share for upcoming commercial coal block auctions, specifically for coal used in gasification.

Over the last few years, industry participation has also been encouraging. In addition, coal gasification and liquefaction projects are likely to increase the local focus on carbon capture technology. These plants have high concentrations of CO2 in the gas stream and are likely to develop in-built carbon capture plants, thereby encouraging the development of carbon capture technology.

Overall, the adoption of gasification and coal-to-chemical (liquefaction) technologies play a critical role in achieving the country’s climate target while utilising the local reserve of coal. The government incentives, scaling up of indigenous technologies and conceptualisation of appropriate business models are crucial for the take-off of this market. In addition to existing incentives, tax benefits, accelerated depreciation and concessional loans for project development, R&D grants may be considered for additional impetus to the sector. The government may also consider introducing policies and support measures for carbon capture and storage, which would further encourage gasification and liquefaction project development. Moreover, mines with better grades of coal suitable for gasification and coal-to-chemical should be earmarked for future auctions. Formulation of a “National Policy for Coal Gasification” could be the next reasonable step by outlining the roadmap for the next decade.