KOLKATA (miningweekly.com) – The Indian government has mooted a proposal to allocate coal blocks to national oil refining-marketing companies to produce methanol and to reduce dependency on imported crude oil-based diesel consumption.

The work-in-progress proposal under the Road Transport Ministry will be submitted to the Prime Minister’s Office (PMO) for formal approval, government officials have said.

Although specific companies have not been mentioned, it is assumed that the government could offer coal blocks to large national oil refining-marketing companies, like State-owned Indian Oil Corporation, Hindustan Petroleum Corporation and Bharat Petroleum Corporation to source or develop appropriate technology for the production of coal-based methanol.

The Road Transport Ministry reckoned that with coal blocks and methanol production facilities, national oil refining-marketing companies could push methanol as the preferred lower priced fuel for the transport sector, thereby reducing high priced diesel consumption and stemming the rise in the crude oil import bill.

Coal blocks in Odisha, Jharkhand, Chhattisgarh and Telengana provinces have been identified for allocation to the national oil companies, government officials have said.

The Ministry has mooted a lower rate of Goods and Service Tax of 12% against the existing rate of 18% for methanol sold to trucks running exclusively on the alternative fuel.

According to a background paper on the ‘methanol economy’ prepared by the Road Transport Ministry, the production cost in India for the alternative fuel from high ash content domestic coal would work out to about Rs19 ($0.28)/liter against an average cost of diesel of about Rs71 ($1.05)/liter of diesel.

At present, Indian methanol production capacity is estimated at two-million tons a year, while the government paper estimated that this could be ramped up to 20-million tons a year by 2025 through higher allocation of coal blocks to producers.

According to another paper prepared by the National Institute for Transformation of India Commission (NITI Aayog), about 10% of crude imports could be replaced by increased domestic use of methanol by the road transport sector and diesel consumption of government transporter Indian Railways.

A 10% cut in crude oil imports by 2030 would require domestic production of about 30-million tons a year of methanol and reduce the crude oil import bill by 30%, the NITI Aayog paper said.

China, which accounted for about 65% of the global installed methanol production of 120-million tons a year, produces the alternative fuel entirely from coal. Methanol accounts for about 9% of its total transport fuel consumption.

The Indian transport sector consumes an estimated 900-million litres of diesel a year and is the sixth largest consumer of the fuel in the world.

Officials pointed out that Coal India Limited has already undertaken diversification towards production of methanol and other specialty coal-based chemicals, but that the miner’s primary focus would continue to be to feed thermal power plants. Under the circumstances, national oil companies with an existing retail network would be more efficient in production and distribution of methanol from coal and replace diesel consumption.