Coal gasification may get Budget boost as govt eyes lower syngas costs, wider use

.

• Govt may boost coal gasification incentives to Rs 20,000–35,000 crore in Budget
• Coal gasification seen as key for energy security and cleaner industrial use
• NTPC plans Rs 10,000-crore coal-to-gas project to revive idle gas-based power capacity

Did our AI summary help?

Coal gasification is likely to be mentioned under the sustainability and just-transition theme in the upcoming Union Budget, with the government working on a significantly larger incentive package than the existing Rs 8,500-crore scheme, according to sources familiar with the matter. The push follows a meeting held by the Prime Minister’s Office (PMO) on Thursday to discuss pathways to achieve the government’s target of 100 million tonnes of coal gasification by 2030.

Coal gasification is a process in which coal is converted into synthesis gas, or syngas—a mixture of hydrogen, carbon monoxide and carbon dioxide—by reacting it with oxygen and steam at high temperatures. Unlike direct coal combustion, gasification allows coal to be used as a cleaner, more versatile feedstock for producing power, fuels and industrial chemicals.

The government sees coal gasification as a way to improve energy security by reducing imports of natural gas, crude oil and fertiliser inputs, while also creating new industrial value chains in coal-bearing regions. It is also being viewed as a transition pathway that can support employment in the coal sector and enable a gradual shift towards lower-emission technologies.

Coal gasification incentives may be raised to ₹20,000–35,000 crore

In addition to surface coal gasification projects, the government is considering bringing underground coal gasification (UCG) within the incentive framework to tap deep or unmineable coal reserves, government officials familiar with the matter said. Moneycontrol had earlier reported that UCG was being considered as part of the government’s broader coal gasification strategy.

The existing coal gasification scheme, approved in January, 2024 with an outlay of ₹8,500 crore, offers incentives for public and private sector projects producing syngas and downstream products such as methanol, ammonia and synthetic fuels, but progress has been limited due to high capital costs, technology risks and uncertainty around long-term offtake.

Officials said the incentive programme is now being reworked and could be expanded to Rs 20,000–35,000 crore, a significant jump from the current outlay, with policy backing likely in the upcoming Budget as part of the broader clean energy transition push.

Government eyes lower syngas costs, wider industrial use

The PMO meeting discussed ways to reduce the cost of producing synthesis gas (syngas) and expand its use as a cleaner alternative to direct coal consumption, particularly in hard-to-abate and power sectors. The inter-ministerial meeting was attended by officials from the ministries of coal, power, and petroleum and natural gas, along with NITI Aayog, government sources said.

One of the key issues flagged was the high cost of syngas production being quoted by some public sector companies. “Engineering major BHEL quoted syngas prices of around $18–19 per million British thermal units (mmBtu), while NTPC said it can achieve lower costs of about $12 per mmBtu, aided by scale, integration and access to captive coal,” said a government official who was present in the meeting.

Syngas push aims to unlock idle gas-based power capacity in India

The government also wants the broader use of synthesis gas (syngas) as an alternative fuel for gas-based power plants, many of which are stranded or operating at low utilisation due to high natural gas prices and supply constraints. India has about 25,000 MW of gas-based power generation capacity, a large part of which remains underutilised, with NTPC accounting for nearly 6,000 MW of this capacity.

“How syngas could help revive this idle capacity while reducing dependence on costly imported natural gas was also extensively discussed in the PMO meeting. This will be apart from supplying syngas as a fuel or feedstock to sectors such as steel, fertilisers and mining,” said a second official who attended the meeting.

NTPC plans Rs 10,000-crore coal-to-gas project

In line with the government’s coal gasification push, NTPC is planning a mega coal-to-synthetic natural gas (SNG) project that could serve as a reference model for future investments. The proposed plant, to be set up at Talaipalli in Chhattisgarh, is expected to involve an investment of at least ₹10,000 crore and produce around 5 lakh tonnes per annum of SNG by gasifying high-ash domestic coal sourced from NTPC’s captive mines.

The facility, spread over roughly 150 acres, is expected to consume nearly 25 lakh tonnes of coal annually. The syngas generated will primarily be used to fuel NTPC’s gas-based power plants, helping revive capacity that has remained underutilised due to high natural gas prices and supply constraints.

“The project is being seen as a potential benchmark for evaluating the commercial viability of coal gasification at scale, as NTPC is targeting a syngas production cost of around $12 per mmBtu, significantly lower than the $18–19 per mmBtu being quoted by some other public sector entities,” said one of the officials quoted above.