While coal gasification presents uncertain decarbonisation outcomes, it can play a crucial role in strengthening the country's raw material security by reducing dependence on imported coal and natural gas, according to an Observer Research Foundation report.

Coal gasification is the process of partially oxidising coal at high temperatures and pressures to convert it into synthetic gas (syngas), which primarily comprises carbon monoxide, carbon dioxide, and hydrogen. As per the report, India's steel sector continues to stand as the fastest-growing steel market globally, with demand projected to expand by 7.4 per cent in 2026 and accelerate to 9.2 per cent in 2027.

The Blast Furnace-Basic Oxygen Furnace (BF-BOF) method accounted for roughly 45 per cent of domestic steel production, and its share faced further increases as most new capacity additions utilized this route.

"Coking coal served as an indispensable input in the BF-BOF method, where it carbonised into coke that functioned as the primary fuel, chemical reducing agent, and physical support structure inside the furnace. Nearly 90 per cent of India's coking coal requirements came from imports from Australia, which exposed steelmakers to price volatility and supply disruptions," the report stated.

The domestic market experienced severe vulnerability when Australian premium hard coking coal prices hit a 17-month high in January 2026 due to heavy rains and flooding in Queensland. Global coking coal prices climbed again in March 2026 because of the West Asia conflict.

This rising demand and continued reliance on the BF-BOF route deepened import dependence. In response, the government implemented Mission Coking Coal to increase domestic raw coking coal production to 140 million tonnes by 2030, while mandating a 10-12 per cent blend of domestic coking coal with imported supplies.

"Coal gasification offered a potential way to reduce these dependencies by enabling the use of domestic coal to produce syngas, which could partially substitute coking coal as a reducing agent and directly substitute LNG in gas-DRI operations," the report added.

Syngas is subsequently used to produce cleaner fuels, fertilisers, and chemicals such as urea, methanol, and ammonia.Natural gas also created a raw material security risk, with India ranked as the world's third-largest importer of liquefied natural gas (LNG), with imports accounting for 50.1 per cent of the total supply. While nearly 80 per cent of direct reduced iron (DRI) production remained coal-based, many domestic steelmakers relied on gas-based methods.

As per the report, war-triggered disruptions in global gas markets forced domestic steelmakers to reduce output and ration existing supplies. To mitigate this, several coal gasification plants entered the pipeline, including projects by Greta Energy and Metal Private Ltd. in Maharashtra and a joint venture between Coal India Ltd. and the Steel Authority of India in West Bengal.

"According to India's Steel Decarbonisation Roadmap, the emission intensity of the syngas-based DRI route ranged from 2.50-2.90 tCO2/tcs, higher than the conventional BF-BOF route, which stood at 2.20-2.60 tCO2/tcs," the report noted. India's steel sector maintained an emission intensity of 2.55 tonnes of CO2 per tonne of crude steel, which remains about 30 per cent higher than the global average.

Although coal gasification offered a path to leverage 400 billion tonnes of domestic coal reserves, it stood as one of the most carbon-intensive pathways for steel production, creating a clear tension with national decarbonisation goals.

The Ministry of Coal integrated gasification provisions into production agreements executed with successful bidders in April 2026 to promote the technology, which retained the potential to generate ₹60,000-90,000 crore annually through import substitution.

The government introduced an ₹8,500 crore incentive scheme in 2024 to support public and private sector projects and approved a further ₹37,500 crore scheme in May 2026, offering financial assistance up to ₹5,000 crore per gasification project.

Published on May 19, 2026