Coal Gasification In India suddenly seems to be everyone’s new darling in the investment space. Why? The government announced a significant new incentive package just last month, there’s global uncertainty increasing India’s import dependence and… it all has a story. We dissect what coal gasification is, why it has captured the attention of investors now and what the various links in its value chain may stand to gain.
Why is the Government pushing Coal Gasification In India Now?
Coal gasification has a long and chequered history in India – the conversation kicked off sometime post Covid-19, but didn’t translate into anything meaningful back then; there was an incentive package announced in early 2024 of roughly ₹8,500 crore but that just did not have the heft for private capital to bite and build massive gasification units.
This has changed, with the recent 2024-25 budget introducing a substantial 37,500 crore worth of incentivization for coal gasification, expected to bring in 3 lakh crore to 4 lakh crore worth of private investment and create approximately 50,000 jobs.
- So what exactly the rush? It all boils down to the fact that we are hugely import-dependent on these key gases:
- About 50% of our natural gas comes from imports
- We import ~20% of urea, while striving for self-sufficiency in its production
- We import ~100% of ammonia required in the economy
- More than 80-90% of our methanol supply is also imported
All this strains the current account, plus the Iran-US conflict has made global supply chains that we depend upon highly unstable. Since we possess significant coal reserves, we can consider turning this readily available domestic resource into other crucial, albeit more value-added, chemicals that we import at scale.
What is Coal Gasification? A Simple Explanation
The technical jargon, coal gasification, actually refers to a fairly simple process. Here it is step-by-step:
- 1. Mine Coal: The coal is dug up.
- 2. Crush Coal: The raw coal is crushed into very fine particles, also called pulverized coal.
- 3. Dry the Pulverized Coal: To remove moisture, the fine coal powder is dried.
- 4. Air Separation: Air contains 79% Nitrogen, and nitrogen acts as an impurity. Hence, here we take just pure oxygen. Air Separation Unit(s) extract oxygen from the air.
- 5. Slurry Formation: Pulverized, dried coal is mixed with water to create a slurry.
- 6. Gasification: This coal-water slurry, along with steam, is introduced into a large pressure chamber (a gasifier) operating at high temperatures (1200°C to 1500°C). Pure oxygen is also pumped into the gasifier.
- 7. Syngas Generation: The high temperature and pressure transform the coal mixture into a gas – primarily a mix of Carbon Monoxide (CO) and Hydrogen (H2) – known as syngas.
- 8. Purify Syngas: Raw syngas cannot be used directly. It has impurities, like sulfur and particles. Therefore, it goes through a cleaning process.
- 9. Conversion to End Products: The pure syngas is then converted into the products we currently import like ammonia, methanol and even LPG depending on requirements.
In layman’s terms: We put coal into this super high heat and high-pressure furnace, extract a usable gas called syngas, and use this gas to make other stuff like ammonia, methanol etc that we usually pay hard-earned foreign exchange for from imports.
Which Companies could Benefit?
A theme like this doesn’t just boost one stock. It spreads across an entire value chain. Here are some segments:
Companies with existing coal gasification capacity
- * Jindal Steel
- * BHEL
- * NTPC Talcher Fertilizers
- * NLC India
Companies which can supply equipment at different stages
- Slurry pumping equipment: KSB Pumps
- Air separation units (Industrial Oxygen supply): Linde India, INOX
- Gasification/Purification equipment: Thermax, Siemens
- Cooling towers and other heat exchangers: Anoop Engineering, etc.
Other beneficiaries could include downstream chemical manufacturers that rely on imported methanol or ammonia as key inputs, such as fertiliser producers.
Risks to consider
As with all government-driven narratives, do bear in mind some of the risks:
– Execution delays. The government has previously announced intentions for coal gasification and for years, those remained mostly on paper; larger incentives may not immediately translate to quick execution this time.
- – High capital expenditure and long payback period for such projects.
- – Technical execution risk. It requires expertise and complex engineering to set up large-scale gasifiers.
- – Policy risk. Governments can change, and so can their incentive structures.
- – Commodity price volatility risk.
Final Thoughts:
This is, by no means, a ‘get rich quick’ kind of policy-driven theme. But at its core, the logic of taking coal that’s abundantly available domestically and converting it into products that currently strain India’s finances and security through imports, is sound. What may drive this opportunity from policy announcement and planning stage towards tangible plant and machinery would be consistent implementation, timely policy support and a reasonable spread in margins over the cost of imported products. While plant makers and equipment suppliers may get an early fillip, a broader positive impact on downstream industries may take a longer and steadier climb.