Coal gasification offers India’s steel sector raw material security, but risks entrenching carbon-intensive production pathways despite decarbonisation ambitions
The energy crisis exacerbated by the West Asia conflict has reinforced most countries’ concerns over energy and raw material security. In India, coal gasification is emerging as a key strategy for material security by leveraging 400 billion tonnes of domestic coal reserves. This is reflected in the inclusion of coal gasification provisions in the Coal Mine/Block Production and Development Agreements executed by the Ministry of Coal with successful bidders in April 2026, marking the first-ever tranche to carry such provisions aimed at promoting this technology.
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. Syngas is subsequently used to produce cleaner fuels, fertilisers, and chemicals such as urea, methanol, and ammonia, with the potential to generate INR 60,000–90,000 crore annually through import substitution.
This technology is also beginning to gain traction within the steel sector, as syngas can strengthen raw material security by partially substituting heavily imported inputs such as coking coal and natural gas. Simultaneously, the steel sector, which accounts for about 12 percent of national emissions, faces an urgent decarbonisation imperative. While coal gasification is considered a cleaner alternative than direct burning of coal, it remains one of the most carbon-intensive pathways for steel production. Highlighting this tension between raw material security and steel decarbonisation, this article examines the emerging role of coal gasification in India’s steel sector.
India introduced the Coal Gasification Mission in 2020, intending to gasify 100 million tonnes of coal by 2030. Under the Mission, all coal companies have been advised to prepare action plans to gasify at least 10 percent of their coal production and are offered a 50 percent rebate in revenue share on coal allocated for gasification.
The high ash content in India’s coal reserves renders most global gasifier designs techno-economically unviable, thereby necessitating the innovation and deployment of indigenous coal gasification technologies and making large-scale deployment more capital-intensive.
Recognising these financial constraints, the government introduced an INR 8,500 crore incentive scheme in 2024 to support public and private sector projects and approved a further INR 37,500 crore scheme in May 2026, offering financial assistance up to INR 5,000 crore per gasification project.
India’s steel sector continues to be the world’s fastest-growing steel market, with demand projected to expand by 7.4 percent in 2026 and accelerate to 9.2 percent in 2027. The Blast Furnace-Basic Oxygen Furnace (BF-BOF) method, where iron ore is first reduced to remove oxygen and then refined for steel, accounts for roughly 45 percent of India’s steel production. Its share is set to rise further as most new capacity additions are planned through this method.
Coal gasification offers a potential way to reduce these dependencies by enabling the use of domestic coal to produce syngas, which can partially substitute coking coal as a reducing agent and directly substitute LNG in gas-DRI operations.
Coking coal is an indispensable input in the BF-BOF method, where it is carbonised into coke that serves as the primary fuel, chemical reducing agent, and physical support structure inside the furnace. Nearly 90 percent of India’s coking coal requirements are met through imports from Australia, exposing steelmakers to price volatility and supply disruptions. In January 2026, Australian premium hard coking coal prices hit a 17-month high after heavy rains and flooding in Queensland disrupted mining operations. Global coking coal prices rose again in March 2026 due to the West Asia conflict. Rising steel demand and continued reliance on the BF-BOF route are further deepening India’s import dependence.
Alongside its policy push for gasification, the government launched Mission Coking Coal in 2022, which aims to increase domestic raw coking coal production to 140 million tonnes by 2030. Additionally, the government has mandated blending 10–12 percent domestic coking coal with imported coking coal and notified it as a critical mineral in 2026 to improve ease of doing business and accelerate exploration.
Gas is also used as a raw material in steelmaking, primarily to produce direct reduced iron (DRI), a key feedstock in steel production. Although gas-based DRI accounts for a relatively small share in India’s steel output, with nearly 80 percent of DRI production remaining coal-based, many domestic steelmakers, including major producers such as JSW Steel and ArcelorMittal Nippon Steel India rely on this method. This creates a raw material security risk, as India is the world’s third-largest importer of liquefied natural gas (LNG), with imports accounting for 50.1 percent of total supply. War-triggered disruptions in global gas markets have already exposed these risks, with domestic steelmakers reducing output and rationing existing supplies.
Coal gasification offers a potential way to reduce these dependencies by enabling the use of domestic coal to produce syngas, which can partially substitute coking coal as a reducing agent and directly substitute LNG in gas-DRI operations. Jindal Steel uses domestic coal-based syngas to produce DRI at its Angul coal gasification facility and has recently started injecting syngas into blast furnaces while extending its use to downstream operations, including colour coating. Several coal gasification plants for DRI production are in the pipeline, including 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.
These developments highlight a growing push towards coal gasification as a strategy to enhance raw material security in India.
India’s steel sector has an emission intensity of 2.55 tonnes of CO2 per tonne of crude steel (tCO2/tcs), about 30 percent higher than the global average. This underscores the urgency of adopting lower-carbon steelmaking pathways aligned with India’s net-zero target for 2070.
Coal gasification is often promoted as a step towards India’s energy transition. However, many reports argue that though domestic coal-based syngas may be a cheaper alternative to imported coking coal, syngas production emits more carbon than conventional natural gas and the direct burning of coal for power. According to India’s Steel Decarbonisation Roadmap, the emission intensity of the syngas-based (coal gasification) DRI route ranges from 2.50–2.90 tCO2/tcs, higher than the conventional BF-BOF route, which is 2.20–2.60 tCO2/tcs.
India’s steel sector has an emission intensity of 2.55 tonnes of CO2 per tonne of crude steel (tCO2/tcs), about 30 percent higher than the global average. This underscores the urgency of adopting lower-carbon steelmaking pathways aligned with India’s net-zero target for 2070.
Some coal gasification-based steel plants in India are integrating carbon capture, utilisation and storage (CCUS) technologies to capture CO2 at the point of emission for storage or reuse as industrial feedstock. When oxygen is used in the gasifier, CO2 is produced in a concentrated gas stream and can be captured more easily and at lower costs for ultimate disposition as opposed to direct burning of coal in the air.
Policy efforts are focused on integrating CCUS into coal gasification hubs as part of broader efforts to position coal in the country’s net-zero transition, with the Union Budget 2026–27 allocating INR 20,000 crore to advance CCUS technologies in heavy industries, including steel.
However, the effectiveness of CCUS as a decarbonisation strategy remains contested. According to the Institute for Energy Economics and Financial Analysis (IEEFA), CCUS deployment has been marked by persistent underperformance driven by technological limitations, high costs, environmental concerns, and uncertainty over the long-term viability of geological CO2 storage. These limitations are evident in Jindal Steel & Power’s Angul coal gasification-based DRI facility, where carbon capture is integrated into the process, but much of the CO2 continues to be released into the atmosphere rather than being effectively utilised or permanently stored.
Alongside CCUS, India is prioritising the scaling up of green hydrogen and scrap utilisation as key pathways for steel decarbonisation. India has brought the cost of producing green hydrogen down to around US$ 3 per kilogram from roughly US$ 5 in 2023. The National Green Hydrogen Mission (2023) has earmarked INR 17,490 crore towards scaling green hydrogen projects such as the Jindal-Hygenco green hydrogen steel initiative. Similarly, efforts are underway to address India’s fragmented scrap recycling ecosystem, where almost 70 percent of recycling is done by small, unorganised players using inefficient technology. India is in the process of revising its 2019 Steel Scrap Recycling Policy to address structural gaps and expand scrap-based steelmaking.
While these initiatives mark important progress in diversifying India’s low-carbon steel transition pathways, most remain at an early stage of development, with the infrastructure, technological maturity, and cost competitiveness required for large-scale deployment likely to materialise only over the medium to long term.
India’s steel transition is unlikely to be driven by a single technological pathway. Rather, it will depend on a pragmatic sequencing of multiple strategies that reflect the country’s developmental priorities, resource availability, and energy security considerations.
Lastly, coal gasification comes with other challenges, such as the production of the waste by-product ‘slag’, which contains heavy metals and is difficult to dispose of safely, as well as water shortages and contamination, compounding the overall environmental footprint of the process. Therefore, the role of coal gasification in steel decarbonisation, even when paired with carbon capture technologies, remains questionable.
India’s steel transition is unlikely to be driven by a single technological pathway. Rather, it will depend on a pragmatic sequencing of multiple strategies that reflect the country’s developmental priorities, resource availability, and energy security considerations, while gradually aligning the sector with long-term decarbonisation goals.
While coal gasification presents uncertain decarbonisation outcomes, it can play a crucial role in strengthening raw material security by reducing dependence on imported coal and natural gas. In this context, coal gasification should be viewed not as a standalone decarbonisation solution, but as one component within a broader portfolio of parallel strategies that India is pursuing to balance decarbonisation efforts while maintaining a competitive steel sector.
Pranita Gupta is a research intern at Observer Research Foundation.
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