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1
Methanol: A Competitive
Alternate Fuel
September, 2021
NITI Aayog
Government of India 2
Methanol: A Competitive Alternate Fuel
By Dr. V.K Saraswat
1
and Ripunjaya Bansal
2
1
Dr. V.K Saraswat is the former Chairman of Defense Research and Development Organization (DRDO) and former
Secretary, Department of Defense R&D to the Government of India. Dr. Saraswat is currently the Member, NITI
Aayog, Government of India and is heading several national committees on a range of subjects including coal
gasification. He is the recipient of Padma Shri and Padma Bhushan, sits on the boards of numerous organizations,
and has been conferred honorary doctorate by more than 25 universities.
2
Ripunjaya Bansal is working as Consultant with Secretary Coal, Ministry of Coal, Government of India. He is a
former Young Professional and Project Leader at NITI Aayog, Government of India where he focused on Energy,
Infrastructure and Climate Change sectors. He holds a Master of Public Administration with a specialization in
Energy and Environment from Columbia University, New York. 3
Acknowledgements:
The authors would like to thank Dr. Abhinav Trivedi, Consultant with Member (S&T), NITI Aayog
and Dr. Suprotim Ganguly, PhD from IIT Delhi and CEO of Global Innovations and Technology
Alliance, for reviewing the paper and giving their valuable suggestions.
4
Contents
1. Introduction: ......................................................................................................................... 6
2. Ethanol: ................................................................................................................................. 7
2.1. Ethanol Production: ....................................................................................................... 7
2.2. Pricing of Ethanol: .......................................................................................................... 8
2.3. Land and Water Requirement for Sugarcane Production: .......................................... 10
2.4. Tax loss incurred by the Government on Ethanol Procurement for EBP: ................... 11
2.5. Food vs Fuel Security: .................................................................................................. 12
3. Methanol: ............................................................................................................................ 13
3.1. Why is Methanol a good option as an alternative fuel? ............................................. 14
3.2. Status of Methanol in India: ........................................................................................ 16
3.3. Pricing of Methanol: .................................................................................................... 18
3.4. Cost of Domestically produced Methanol from Coal: ................................................. 19
4. Vehicular Fuel Efficiency and Emissions: ............................................................................ 20
5. Comparative Analysis for the cost of Ethanol, Methanol, and Gasoline: ........................... 22
6. Conclusion: .......................................................................................................................... 23
5
List of Tables:
1. Table 2.1: Ethanol Production and Blending %
2. Table 2.2: Differential Pricing for Ethanol based on different Raw Materials
3. Table 2.3: Break-up for the price of Gasoline
4. Table 2.4: Likely Tax Loss to the Government for the Ethanol sold in 2019-20
5. Table 3.1: Break -up of Coal Resources (MT) in India – Category wise as of 1.04.2019
6. Table 4.1:
Emissions Reduction Potential for Ethanol Gasoline Fuel Blend
7. Table 5.1: Cost Comparison of Ethanol and Methanol with Gasoline
List of Figures:
1. Figure 2.1: Break-up of Ethanol Production
2. Figure 3.1: R/P Ratio of Different Countries as of 2019 (Years)
3. Figure 3.2: Primary Drivers for Coal Gasification in India
4. Figure 3.3: Status of Methanol in India
5. Figure 3.4: Methanol Imports – Quantity and Value
6. Figure 3.5: International Methanol Prices (INR/kg)
7. Figure 3.6: Domestic Methanol Prices (INR/kg)
8. Figure 4.1: Calorific value of Ethanol-Methanol-Gasoline fuel blends
6
1. Introduction:
India has been giving a push for alternate fuels such as Ethanol and, more recently, Methanol to
improve its energy security. India meets 85% of its crude oil requirement, 53% of its natural gas
requirement, and 25% of its coal requirement through imports
3
. Ethanol is primarily used for
blending with gasoline citing twin benefits: substitution of gasoline to arrest rising crude imports
and using a relatively cleaner fuel than gasoline. The Government of India regulates the prices of
ethanol derived from various sources and procures it through the Oil Marketing Companies at
pre-determined prices. However, ethanol primarily derived from molasses and sugarcane juice
can ignite a fuel vs food security debate; Methanol, on the other hand, can be derived from
different sources such as natural gas, coal, naphtha, biomass etc. Natural gas is the most widely
used feedstock to produce methanol across the world accounting for almost 70% of the global
production. India has given a strong push for methanol from coal since coal is abundantly
available in India whereas natural gas is a scarce resource.
India is on the cusp of a major transformational change as it transitions toward a low carbon
economy. The energy policies of the country and those on the anvil demonstrate and focus on
the country’s transition toward cleaner fuels in a sustainable manner. And coal gasification of
domestically available coal to produce methanol (deployed with Carbon Capture & S torage- CCS)
presents an opportunity to accelerate this transition in an energy secure manner.
This document will focus on the economic comparison of ethanol, methanol, and gasoline. Both
ethanol and methanol can be used for blending with gasoline.
3
PPAC, Ministry of Petroleum and Natural Gas, Government of India 7
2. Ethanol:
2.1. Ethanol Production:
Ethanol Blending Program (EBP) has been a priority of the Government, especially since 2014.
The National Biofuels Policy of India in 2018 had set a target of 20% blending with gasoline by
2030. The ethanol production increased from 38 Cr liters in 2013- 14 to 173 Cr. liters in 2019-20,
a jump of 4.5X. Considering the strong performance, the Hon’ble Prime Minister of India set a
new target of 20% blending by 2025-26, reducing the timeline for the target to be achieved, by 5
years.
Ethanol Production and Blending %
Year Production
4
(Cr Liter) Blending %age PSU OMCs
2013-14 38.0 1.53%
2014-15 67.4 2.33%
2015-16 111.4 3.51%
2016-17 66.5 2.07%
2017-18 150.5 4.22%
2018-19 188.6 5.00%
2019-20 173.0 5.00%
Table 2.1 - Source: NITI Aayog
The table 2.1 shows that the supply of ethanol increased at a CAGR of 128% over the last 6 years.
And the blending % with gasoline increased from 1.53% in 2013-14 to 5 % in 2019-20. The
tentative figure for the ethanol production in 2020-21 is 332 Cr liters which is almost double the
production in 2019-20. This will take the blending to 8.5%, a significant jump over the previous
figure of 5% in 2019-20. The current production capacity of ethanol is 684 Cr liters which must
rise to 1500 Cr
5
liters by 2025-26 to achieve an ethanol production of 1016 Cr liters for a 20%
blend with gasoline.
4
The production figures of ethanol in table 2.1 are only for blending, not the overall production of ethanol which
will include the ethanol production for various other uses.
5
NITI Aayog’s Report on Ethanol Blending Program 8
Figure 2.1 - Source: NITI Aayog
As shown in Figure 2.1, Until FY 18, C-Heavy molasses had been the primary source of feedstock
for ethanol production, however, since FY 19, different kinds of raw materials such as B-Heavy
molasses, sugarcane juice and damaged food grains have been used as well to produce ethanol.
2.2. Pricing of Ethanol:
The prices for ethanol produced from sugarcane sources is fixed by the government and
approved by the Cabinet Committee for Economic Affairs (CCEA), whereas the price of ethanol
derived from damaged food grains or rice is fixed by the Oil Marketing Companies. The following
steps taken by the government has given a strong push to the indigenous production of ethanol
6
:
• The Government of India re-introduced the administered pricing for ethanol in 2014.
• Reduction in Goods & Service Tax (GST) from 18% to 5% on ethanol meant for EBP
Programme.
• Interest Subvention Scheme for enhancement and augmentation of the ethanol
production capacity by Department of Food and Public Distribution (DFPD).
6
Department of Fertilizers, Government of India
38
67.4
111.4
66.5
150.5 145.8
74.12
32.6
68.14
14.83
9.5
15.08
0
20
40
60
80
100
120
140
160
180
200
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Break- up of Ethanol Production (Cr Litre)
C-HeavyB-HeavySugarcane JuiceFood Grains 9
• Differential ethanol pricing based on raw material utilized for ethanol production – this
helps to consider the economic viability of ethanol produced from different sources.
Above all, there has been a stable policy and a consistent push for ethanol production in India,
especially since 2014, which has enhanced the production by almost 8X from the 2013-14 levels.
An overproduction of sugar in India has suppressed the sugar prices, hurting the sugar mills which
in turn causes a delay in the payment to the sugarcane farmers. 32 Million Tons (MT)
7
of sugar is
produced in a typical sugar season, whereas the domestic requirement is to the tune of 26-27
MT. Hence, a 6-7 MT of surplus which remains unsold causes a liquidity problem (of around INR
19000 Cr)
8
for sugar mills resulting in arrears for the sugarcane price to be paid to the farmers.
Though, the government is extending financial assistance to export the surplus sugar and can do
so till 2023 as per the WTO arrangements, the government is encouraging the diversion of surplus
sugar to produce ethanol as a long-term solution.
It is expected that in 2021-22, 3.5
9
MT of sugar will be diverted toward ethanol production and
this figure is likely to rise to 6 MT by 2025. If so, this will solve the problem of surplus sugarcane
and the cane price dues of farmers will be cleared on time. Therefore, to encourage ethanol
production, the prices of ethanol derived from various sources have been revised upward a
couple of times in the past 2-3 years. The current prices of ethanol derived from various feedstock
sources is as below:
Table 2.2 - Source: Department of Fertilizers, Government of India
Table 2.2 captures the prices of ethanol derived from various sources. It must be noted that the
above prices for ethanol do not include the subsidies given by the government in the agricultural
sector on electricity and fertilizers for sugarcane production. Though a by-product of the sugar
7
https://pib.gov.in/Pressreleaseshare.aspx?PRID=1674340
8
https://pib.gov.in/Pressreleaseshare.aspx?PRID=1674340
9
https://www.livemint.com/news/india/indias-ethanol-distillation-capacity- to-double-by-2025-
11623757246439.html
Differential Pricing for Ethanol based on different Raw Materials
Different Sources for Ethanol Production INR/Litre
‘C’ Heavy Molasses 45.69
‘B’ Heavy Molasses 57.61
Direct Cane Juice 62.65
Damaged Food Grains/Maize 51.55
Surplus Rice (FCI) 56.87 10
process, molasses, is used for ethanol production, the actual cost incurred by the government to
procure ethanol would be higher than the ones mentioned above. Since, the above prices for
ethanol will incentivize the sugar distilleries to produce ethanol and will further encourage
farmers to produce more sugarcane, the government has to be cautious whether the subsidy
provided for sugarcane inadvertently ends up subsidizing ethanol production.
2.3. Land and Water Requirement for Sugarcane Production:
Sugarcane is one of the most water and land intensive crops. Sugarcane requires between 1,500
and 3,000 litres
10
of water per kilogram of cane. Of the crops grown in India, only rice and cotton
require more water than sugarcane. Sugarcane and rice are grown in 40 per cent of the country’s
gross farmed area but consume about 80 per cent of its irrigation water
11
. India accounts for only
4% of the world’s water resources but houses around 17% of the global population. Thus, India
should be very careful in using its groundwater resources and grow crops that are less water
intensive. On the contrary, India is currently the world’s biggest extractor of groundwater —
more than China and the U.S. combined — accounting for almost a quarter of the total extracted
globally. Between 2000 and 2017 its groundwater depletion increased by as much as 23 per
cent
12
. The situation becomes even more grave for the water scarce regions of the country such
as Marathwada in Maharashtra. Sugarcane is cultivated in only 4% of the state’s cultivable land
but consumes 70% of its irrigation water
13
.
The Government has encouraged to cultivate crops other than sugarcane. A task force at NITI
Aayog recommended that about 3 lakh hectares of area under sugarcane, which yields about 20
lakh tons of the crop, should be used to grow other crops. Therefore, the government must take
a balanced approach taking into consideration- the advantages of using ethanol as an alternate
fuel which helps in oil import reductions and the adverse implications of growing more sugarcane
in India.
10
https://www.futuredirections.org.au/publication/supporting-farmers-in-the-switch-from-sugarcane-could-be-a-
small-piece-of-the-indian-water-crisis-puzzle/
11
https://economictimes.indiatimes.com/news/economy/agriculture/rising-water-crisis-forces-indian-farmers-to-
rethink-their-crops-selection/articleshow/77098970.cms?from=mdr
12
https://economictimes.indiatimes.com/news/economy/agriculture/rising-water-crisis-forces-indian-farmers-to-
rethink-their-crops-selection/articleshow/77098970.cms?from=mdr
13
https://www.financialexpress.com/opinion/maharashtras-water-wars-state-must-discourage-sugarcane-
farming-fix-water-usage/1516661/ 11
2.4. Tax loss incurred by the Government on Ethanol Procurement for EBP:
There is a GST of 5% on Ethanol, whereas gasoline attracts a slew of taxes as shown in the table
below.
Break-up for the Price of Petrol
14
Elements INR/Litre (May 2021
@$66.95/bbl of crude oil price)
Price charged to dealers (excluding excise duty and VAT) 35.99
Excise duty 32.90
Dealers' commission (average) 3.79
VAT (including VAT on dealers' commission) 21.81
Total 94.49
Table 2.3 - Source: PPAC
As shown in table 2.3 , the central government collects a whooping INR 32.90 as excise duty for
every liter of petrol sold, whereas the state government collects a VAT of INR 21.81 per liter.
Since, ethanol has only 5% GST and no other taxes, the central government forgoes the excise
duty for the amount of gasoline replaced by ethanol. It is acknowledged that the state
governments also give up VAT, but because of the complexities on the VAT collected by different
state governments, this analysis focuses on the tax loss incurred to the central government.
14
Petrol and diesel prices at Delhi as per IOCL as on 1st June 2021 12
Table 2.4
Table 2.4 shows the likely tax loss to the central government incurred due to the gasoline
replaced by ethanol for ethanol blending with gasoline. The likely amount comes out to be INR
4757 Cr for 2019-20. The tax loss will increase in the future as the government has a target of
20% ethanol blending by 2025. The amount can increase to more than 5 times as the ethanol
production has to be increased to 1000 Cr. Liters by 2025 from 173 Cr. Liters in 2019-20.
2.5. Food vs Fuel Security:
As India imports around 85% of its crude requirement, the government is focusing on ethanol
blending program to give a push to alternate fuels. Though, the government is encouraging the
use of excess food stocks to be used for fuel production, experts say that India needs to move
ahead cautiously balancing its food security concerns
15
. As shown in figure 2.2, the government
has in the recent years increased the prices of ethanol at which it is being procured. Hence, this
provides an incentive for the distilleries to produce ethanol, which in turn also incentivizes the
farmers to produce more sugarcane. Developments in the West show that there has been a fierce
competition between food and fuel crops for land, which is fixed in supply. The government has
to constantly monitor this trend as it can cause two disruptions – a supply and demand imbalance
for food as more land gets covered for cash crops such as sugarcane and acute water scarcity due
to cultivation of water intensive crops. This becomes even more significant because India holds
only about 2.5% of the global land available, whereas additional 200 million people will be
required to be fed in the next 15 years
16
.
15
https://www.hindustantimes.com/india-news/new- ethanol-targets-reshape- india-s-food-policy-
101624419942244.html
16
http://medcraveonline.com/APAR/APAR-07-00267.pdf
Likely Tax Loss to the Government for the Ethanol sold in 2019-20
Elements
Price of
fuel (INR)
GST@ 5%
(INR)
Tax foregone by
the Central
Government per
liter of gasoline
replaced by ethanol
(INR)
Amount of
Ethanol sold
in 2019- 20
(Cr. liter)
Total Tax loss to
the Central
Government (INR
Cr)
C Heavy Molasses 45.69 2.28 30.62 74.12 2270
B Heavy Molasses 57.61 2.88 30.02 68.14 2046
Direct Cane Juice 62.65 3.13 29.77 14.83 441
Total tax loss
4757 13
3. Methanol:
Methanol is another alternative fuel that can be blended with gasoline in the transport sector
and can be used to produce many downstream chemical and petrochemical products such as
DME, Olefins, Acetic Acid etc. Methanol can be produced through natural gas, coal, biomass,
naphtha etc., however methanol derived from coal is the most economically viable option for
India. India has abundant reserves of coal available at a relatively cheaper price than natural gas
or crude oil, 55% and 85% of which are imported respectively.
Break-up of Coal Resources (MT) in India – Category wise as of 1.04.2019
Coal Type Proved Indicated Inferred Total % share
Prime Coking 4,668 645 0.00 5,313 1.6
Medium Coking 14,876 11,245 1863 27,984 8.6
Semi Coking 519 995 193 1,708 0.5
Sub-Total of Coking 20,063 12,885 2056 35,004 10.7
Non-Coking 1,34,958 1,27,494 27,416 2,89,868 88.8
Tertiary Coal 594 121 909 1,624 0.50
Grand Total 1,55,614 1,40,501 30,381 3,26,496 100.00
% share 48% 43% 9% 100%
Table 3.1 - Source: Ministry of Coal
Table 3.1 shows that India 326 billion tons of coal reserves of which almost 50% are proved
reserves, meaning technically and commercially viable to produce. India, with a 10% share of
global proved reserves, has the 5
th
largest proved reserves of coal in the world
17
.
17
British Petroleum Statistical Review 2020 14
Figure 3.1 – Source: BP Statistics 2020
The coal reserves of India will likely last for 140 years at a consumption rate of that in 2019.
Therefore, India must use its domestic natural resource, coal, in the most optimal way given that
the use of coal is only likely to decline in the future.
3.1. Why is Methanol a good option as an alternative fuel?
India is already in the midst of a transition toward a low carbon economy. The share of coal in
energy mix of India is likely to decline to 40% by 2040 from 46% currently. Moreover, it would
not be surprising to see the sanctions tightening on the coal sector globally. Therefore, using
domestic reserves of coal sustainably, gasifying it along with using CCS, provides an opportunity
for India to use its natural resource at a relative discount to other fuels such as oil or natural gas.
Coal gasification produces 31% less CO
2 emissions, 98% less SO x emissions, and 84% less NOx
emissions relative to a coal fired power plant. And if CCS is used, the emissions can practically to
brought down to zero. Therefore, developing coal to chemicals industry in a sustainable fashion
is much in the interest of India.
390
294
140
132
65
39 37
0
50
100
150
200
250
300
350
400
450
R/P Ratio of Different Countries as of 2019 (Years)
USAustraliaIndiaWorldIndonesiaSouth AfricaChina 15
Following are the 4 primary drivers for gasifying coal in India:
Also, coal gasification is a less emissions intensive process relative to the traditional combustion
of coal in power plants.
Figure 3.2
Figure 3.2 entails the 4 primary drivers for coal gasification in India. The low cost of coal in India
provides an opportunity to produce a range of products from coal such as methanol, olefins,
DME, and others at a competitive price.
The United States had successfully launched a methanol (M15 and M85) blending program
primarily driven by air quality considerations in California in 1980s and 1990s. 15,000
18
M85 flexi-
fuel vehicles were sold or operated in California during that time. However, Methanol did not
become a successful alternate fuel as its introduction coincided with a period of low gasoline
prices which faded away the economic incentive.
The government has launched the commercial coal mining in India with an objective to liberalize
the sector to bring in more competition and increase production. In the future commercial coal
block auctions, coal gasification has been incentivized as there is a provision for 20% rebate in
revenue share provided the mine developer uses at least 10% of its production for coal
gasification.
18
Methanol: Properties and Uses report by SGS Inspire 16
3.2. Status of Methanol in India:
Figure 3.3 – Source: Chemical and Petrochemical Statistics 2019
It is evident from figure 3.3 that 90% of the methanol demand in India is met through imports,
whereas the capacity utilization of domestic plants in India hovers around 45-50%. This is so
because the domestically produced methanol
19
(from natural gas) is not competitive with the
imported methanol, largely from the gulf
20
where natural gas is abundantly available at very low
prices. The consumption of Methanol has grown at a CAGR of 7% over the last 5 years. There is a
high latent demand for methanol in India. If India were to domestic ally produce methanol from
coal at a competitive price, methanol can be readily consumed in the chemical and petrochemical
sector.
19
Imported LNG is primarily used to produce methanol in India. The price of imported LNG at the plant gate which
includes regasification costs, transportation costs and taxes does not cost less than $8-10/mmbtu, even during low
natural gas price environments. The price of natural gas in the West Asia and North America hovers between $1.5-
3/mmbtu which is significantly lower than that in India. Therefore, it is highly unlikely that India will be able to
compete with the West Asia n or North American producers of methanol if the feedstock is natural gas. However,
the economic viability completely changes if India shifts to a coal to methanol route.
20
Almost 100% of methanol is imported from the gulf. For example, in 2018, 2/3
rd
of the methanol was imported
from Iran and another 25% from Saudi Arabia. The rest comes from Oman, Qatar, and Russia.
0.474 0.474 0.474 0.474 0.474
0.210
0.163 0.176
0.26 0.27
1.80 1.83 1.8
2.03
2.25
0%
10%
20%
30%
40%
50%
60%
0
0.5
1
1.5
2
2.5
2014-15 2015-16 2016-17 2017-18 2018-19
Status of Methanol in India
Capacity Production Consumption Capacity Utilization (%) 17
Figure 3.4 – Source: Chemical and Petrochemical Statistics 2019
The Methanol imports have grown at a CAGR of 5.4% and the import value is to the tune of $700
Million in 2018- 19. Therefore, domestic production of methanol derived from coal will be an
opportunity for India to substitute methanol imports.
Methanol can be blended with gasoline, so it provides an opportunity to substitute gasoline.
Different volumes of Methanol blends such as M5, M10, M15, M85 or M100 can be used
depending upon the application. In 2016, China blended around 21 MT of methanol with
gasoline, whereas India has not even started using methanol as a transportation fuel
21
. 15
provinces of China are already using different Methanol blends (M15 to M100) as transportation
fuel and the trend is likely to grow.
China has successfully commercialized the coal to methanol projects and is the world’s largest
producer and consumer of Methanol. China has developed a huge MTX industry i.e., a methanol-
based platform where methanol is converted to olefins, gasoline, aromatics, dimethyl-ether, and
methyl tertiary butyl ether. The large number of Coal to X plants in China not only enhances its
energy security but also opens avenues for chemical and petrochemical sectors where methanol
is a major feedstock.
21
India’s Leapfrog to Methanol Economy, NITI Aayog, publ ished by Dr. V.K. Saraswat and Ripunjaya Bansal
1.59
1.67
1.62
1.77
1.97
0
1000
2000
3000
4000
5000
60000.00
0.50
1.00
1.50
2.00
2.50
2014-15 2015-16 2016-17 2017-18 2018-19
Methanol Imports -Quantity & Value
Net Imports (MT) Net Imports (INR Cr) 18
3.3. Pricing of Methanol:
Since 90% of methanol requirement is met through imports, India is exposed to the price and
supply volatilities of the international market. The price of imported methanol depends on the
price of natural gas, feedstock for methanol in the Gulf and West, and the supply and demand
dynamics.
Figure 3.5: Source – Methanex
Figure 3.5 shows the price volatility of methanol in international markets. The above are the
prices posted by Methanex, one of the world’s largest producers of methanol. Over the past
decade, the price of methanol has varied between INR 20-40 per Kg, whereas between July, 2018
and July, 2020, the price varied from INR 24-36 per kg. Though, during the covid-19 pandemic,
the prices crashed to INR 16-19/Kg, but bounced back within a period of 3-4 months. Therefore,
domestic production of methanol from coal will ensure a steady supply at a competitive narrow
price range relative to the imported methanol.
31
32
24
22
39
33
31
23
27
24
19
38
24
36
22
16
0
5
10
15
20
25
30
35
40
45
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Oct-18
Jan-19
Apr-19
Jul-19
Oct-19
Jan-20
Apr-20
Jul-20
International Methanol Prices (INR/kg)
Methanex European Posted Contract Price/KgMethanex Asian Posted Contract Price/Kg 19
Figure 3.6 – Source: CMIE database
Figure 3.6 gives the price of domestic methanol derived from natural gas. Since 90% of methanol
requirement in India is met through imports, domestic production becomes viable only when the
import prices are high enough to support the high cost of domestically produced methanol from
natural gas. The high cost of methanol production is attributed to a high cost of feedstock, which
is natural gas. RLNG is primarily used to produce methanol which is not below $8-10/mmbtu by
the time gas reaches the plant gate.
3.4. Cost of Domestically produced Methanol from Coal:
Based on the internal research done by the Ministry of Coal in collaboration with private
investors, coal gasification companies, and technical experts, the price of methanol is likely to
hover around INR 22-25/Kg
22
or INR 17.5 – 19.8 per liter (density of methanol – 0.791 kg/liter).
Since, India does not have a commercial coal to methanol plant yet, it would be difficult to come
up with a definite price of methanol derived from coal. For the analysis her e, we assume a
conservative price of methanol i.e., INR 19.8/liter.
As evident from figure 2.2, the cost incurred to the government for ethanol being procured on a
per liter basis at INR 45.69 – 62.65 is much higher than that of methanol. On an energy equivalent
basis, 1.28 liters of methanol will be required to produce the same amount of energy as available
from a liter of ethanol. Therefore, 1.28 liters of methanol will cost INR 25.3, whereas the same
amount of energy is available for INR 45.69 – 62.65 in case of ethanol. In the subsequent sections,
a comparative economic analysis for ethanol, methanol and gasoline is done.
22
This price assumes a coal price of INR 1000/ton and assumes a return of 10% for the mining company. Since, the
Ministry of Coal is in the midst of inviting tenders for coal to methanol projects, we refrain from giving more
details. However, the price of methanol should not vary much, might be another INR 2 per kg higher or lower.
20.1
24.7
31.7
33.6
41.8
32.4
28.2
28.7
38.8
37.4
26.7
15
20
25
30
35
40
45
2009-102010-112011-122012-132013-142014-152015-162016-172017-182018-192019-20
Domestic Methanol Prices (INR/Kg) 20
4. Vehicular Fuel Efficiency and Emissions:
Various research studies have been conducted to compare the fuel efficiencies of ethanol,
methanol, and ethanol-methanol fuel blends with gasoline. The experimental results indicate
that the low methanol and ethanol blends up to 30% volume have a similar calorific value to
gasoline. For higher methanol and ethanol blends, the calorific value of blended fuels decreases
significantly, meaning the efficiency of blended fuels decrease.
Figure 4.1: Source: Report on ‘Methanol: Properties and Uses’ by SGS Inspire
It is evident from figure 4.1 that the calorific value of M5-M25 blends with gasoline is similar to
that of unblended gasoline. And similar are the results for lower ethanol blends. Various studies
indicate that few changes are required for methanol-gasoline blends to be used in Spark ignition
(SI) engine. Though, following changes were done for M15 vehicles in China
23
:
• Fuel nozzles of the carburetor were enlarged to adjust the AFR to the stoichiometric value
of the actual blend.
• The mixture was heated before it entered the engine at cold start.
23
The experimental results from the research illustrated in the report ‘Methanol: Properties and Uses’ by SGS
Inspire have been taken. 21
• The carburetor and fuel line were modified to avoid vapor locks and damage to some of
the parts (plastic and rubber, especially) because of corrosion and material degradation.
A research study was undertaken by Automotive Research Association of India (ARAI), Indian
Institute of Petroleum (IIP) and Indian Oil Corporation (R&D) in 2014-15 to determine the
suitability of E20 ethanol blend fuel in vehicles. Though, some minor challenges occurred, there
was no severe malfunction or stall observed at any stage of vehicle operation.
It is highly recommended that a research must be undertaken in India to evaluate the vehicular
performance for methanol-gasoline blends.
With regards to emissions, the methanol gasoline blends have the lowest hydrocarbon (HC) and
carbon monoxide (CO) emissions when compared with ethanol gasoline blends or methanol-
ethanol-gasoline blends. The Methanol fuel blends (3%- 10% volume) show lower CO and UHC
emissions than the ethanol blended fuels by about 6% and 7 %, respectively.
Emissions Reduction Potential for Ethanol Gasoline Fuel Blend
Two-Wheelers Two-Wheelers
Emissions Gasoline E10 E20 E10 E20
Carbon Monoxide
(CO) Baseline 20% lower 50% lower 20% lower 30% lower
Hydrocarbons (HC) Baseline 20% lower 20% lower 20% lower 20% lower
Oxides of Nitrogen Baseline
No significant
trend 10% higher
No significant
trend same
Table 4.1: Source – NITI Aayog’s report on Roadmap for Ethanol Blending in India
The table 4.1 gives the emissions reduction potential for ethanol gasoline blends in comparison
to unblended gasoline fuel. Though, there is a reduction in CO and HC emissions for ethanol
gasoline fuel blends, there is no significant trend for nitrogen oxides.
22
5. Comparative Analysis for the cost of Ethanol, Methanol, and
Gasoline:
In the previous sections of the document, we have discussed the tax loss incurred to the
government due to the amount of gasoline replaced by ethanol for blending. Moreover, the likely
price of domestically produced methanol from coal is also discussed. Therefore, a comparative
analysis for the cost of ethanol and methanol is done with gasoline on an energy equivalent basis.
Table 5.1
It can be clearly seen from table 5.1 that methanol is much more economically competitive
relative to ethanol when considering blending with gasoline. Since the calorific values of ethanol,
methanol, and gasoline are different, the amount of energy received from each unit of fuel is
24
Ethanol derived from different sources have different prices. Since, 100% of ethanol was derived from C-Heavy
molasses until FY 18 and 75% of it in FY 19 and 45% of it in FY 20, the price of ethanol used is for C-Heavy molasses.
However, table 2.2 gives prices of ethanol derived from different sources.
25
This is the price for ethanol derived from C-heavy molasses, which is the major source for ethanol production.
The figure 2.1 gives a production break-up source wise. This price does not include GST.
26
Table 2.3 gives the price of gasoline charged to dealers excluding any taxes (excise duty or VAT)
27
Since, there is no commercial coal to methanol plant in India, government is yet to decide the tax structure for it.
28
This includes an excise duty of INR 32.90, VAT of INR 21.81, and the dealer’s commission of INR 3.79. The break-
up for the price of gasoline is given in table 2.3.
29
The tax on methanol is not included as this policy decision is open for discussion.
Cost Comparison of Ethanol and Methanol with Gasoline
S.No Parameters Ethanol
24
Methanol Gasoline
(Petrol)
#1 Calorific Value (Kcal/Kg) 7100 5500 11,110
#2 Density (kg/litre) 0.789 0.791 0.750
#3 Price of 1 liter of fuel (INR/liter) 45.69
25
19.8 35.99
26
#4 Energy Equivalent units for 1 liter of Petrol 1.48 1.90 1
#5 Price paid by the government (excluding
taxes) for different fuels to replace 1 liter of
Petrol on energy equivalent basis (INR/liter)
67.62
(#3*#4)
37.62
(#3*#4 )
35.99
(#3)
#6 Tax on respective fuels (INR/liter) 2.28 (@ 5% GST) undefined
27
58.50
28
#7 Price (including taxes) paid by consumer for
different fuels to replace 1 liter of Petrol on
energy equivalent basis (INR/liter)
69.9
(#3*#5 + #4)
37.62
29
(#3*#5)
94.49
(#3 + #4) 23
different. Gasoline has the highest calorific value followed by ethanol and methanol. This means
that on an energy equivalent basis, we will need 1.48 liters of ethanol and 1.90 liters of methanol
to get the same amount of energy as derived from a liter of gasoline. Therefore, on an energy
equivalent basis, ethanol is rather much expensive than methanol . It is to be noted that we have
used the price of ethanol derived from C-heavy molasses which is the cheapest. However, if the
price of ethanol derived from B-heavy molasses and sugarcane juice is used, the cost of ethanol
to replace a liter of gasoline will be even higher on an energy equivalent basis. Even if a tax rate
of INR 58.50 is levied on methanol, its price will become INR 96.12 on an energy equivalent basis
with gasoline which will be in the range of current gasoline prices prevailing in India. A high
gasoline environment incentives alternate fuels, thus, this is the right opportunity to establish
methanol as a commercial alternate fuel in India.
6. Conclusion:
From the above analysis, it is clear that methanol is much cheaper than ethanol. A liter of
methanol costs around INR 19.8, whereas the cost of ethanol lies between INR 45.69 – 62.62 per
liter depending upon the source as shown in figure 2.2. Since, the calorific value of ethanol is
7100 Kcal/Kg, whereas that of methanol is 5500 Kcal/kg, 1.28 liters of methanol would be
required to produce the same amount of energy as derived from a liter of ethanol. Therefore, on
an energy equivalent basis, 1.28 liters of methanol will cost INR 25.3 to replace a liter of ethanol.
When comparing the cost of ethanol, methanol, and gasoline, methanol is the cheapest alternate
fuel available. The cost of gasoline including taxes is INR 94.49 per liter and the cost of ethanol
including taxes on an energy equivalent basis with gasoline is INR 69.9 as shown in table 5.1.
Whereas the cost of methanol on an energy equivalent basis with gasoline is INR 37.6 as evident
from table 5.1. Since, there is no commercial coal to methanol plant in India, the government is
yet to define the tax structure on methanol. However, even if the government levies a tax of INR
58.50 on methanol, it’s price will become INR 96.12 on an energy equivalent basis with gasoline
which is very much in the range of current gasoline prices prevailing in India. Unlike ethanol,
methanol will not ignite a food vs fuel security debate. Rather, using coal to produce methanol
will help India monetize its domestic resources to reduce crude oil imports.
A high gasoline price environment incentives alternate fuels such as methanol and ethanol.
Therefore, India must deploy large scale coal to methanol plants (preferably deploying CCS) to
use methanol as an alternate fuel for blending. This will support and encourage the existing
ethanol blending program.
A National Coal Gasification Mission must be formulated to evaluate the status of coal
gasification in India and suggest a roadmap for a sustainable coal to chemicals and
petrochemicals industry, including coal to methanol. This will give a strong push to atmanirbhar
Bharat as domestic coal will be used to produce different chemicals and petrochemicals. 24
Disclaimer: Opinions and recommendations in this article are exclusively of the authors and not
of any other individual or institution.
Methanol: A Competitive
Alternate Fuel
September, 2021
NITI Aayog
Government of India 2
Methanol: A Competitive Alternate Fuel
By Dr. V.K Saraswat
1
and Ripunjaya Bansal
2
1
Dr. V.K Saraswat is the former Chairman of Defense Research and Development Organization (DRDO) and former
Secretary, Department of Defense R&D to the Government of India. Dr. Saraswat is currently the Member, NITI
Aayog, Government of India and is heading several national committees on a range of subjects including coal
gasification. He is the recipient of Padma Shri and Padma Bhushan, sits on the boards of numerous organizations,
and has been conferred honorary doctorate by more than 25 universities.
2
Ripunjaya Bansal is working as Consultant with Secretary Coal, Ministry of Coal, Government of India. He is a
former Young Professional and Project Leader at NITI Aayog, Government of India where he focused on Energy,
Infrastructure and Climate Change sectors. He holds a Master of Public Administration with a specialization in
Energy and Environment from Columbia University, New York. 3
Acknowledgements:
The authors would like to thank Dr. Abhinav Trivedi, Consultant with Member (S&T), NITI Aayog
and Dr. Suprotim Ganguly, PhD from IIT Delhi and CEO of Global Innovations and Technology
Alliance, for reviewing the paper and giving their valuable suggestions.
4
Contents
1. Introduction: ......................................................................................................................... 6
2. Ethanol: ................................................................................................................................. 7
2.1. Ethanol Production: ....................................................................................................... 7
2.2. Pricing of Ethanol: .......................................................................................................... 8
2.3. Land and Water Requirement for Sugarcane Production: .......................................... 10
2.4. Tax loss incurred by the Government on Ethanol Procurement for EBP: ................... 11
2.5. Food vs Fuel Security: .................................................................................................. 12
3. Methanol: ............................................................................................................................ 13
3.1. Why is Methanol a good option as an alternative fuel? ............................................. 14
3.2. Status of Methanol in India: ........................................................................................ 16
3.3. Pricing of Methanol: .................................................................................................... 18
3.4. Cost of Domestically produced Methanol from Coal: ................................................. 19
4. Vehicular Fuel Efficiency and Emissions: ............................................................................ 20
5. Comparative Analysis for the cost of Ethanol, Methanol, and Gasoline: ........................... 22
6. Conclusion: .......................................................................................................................... 23
5
List of Tables:
1. Table 2.1: Ethanol Production and Blending %
2. Table 2.2: Differential Pricing for Ethanol based on different Raw Materials
3. Table 2.3: Break-up for the price of Gasoline
4. Table 2.4: Likely Tax Loss to the Government for the Ethanol sold in 2019-20
5. Table 3.1: Break -up of Coal Resources (MT) in India – Category wise as of 1.04.2019
6. Table 4.1:
Emissions Reduction Potential for Ethanol Gasoline Fuel Blend
7. Table 5.1: Cost Comparison of Ethanol and Methanol with Gasoline
List of Figures:
1. Figure 2.1: Break-up of Ethanol Production
2. Figure 3.1: R/P Ratio of Different Countries as of 2019 (Years)
3. Figure 3.2: Primary Drivers for Coal Gasification in India
4. Figure 3.3: Status of Methanol in India
5. Figure 3.4: Methanol Imports – Quantity and Value
6. Figure 3.5: International Methanol Prices (INR/kg)
7. Figure 3.6: Domestic Methanol Prices (INR/kg)
8. Figure 4.1: Calorific value of Ethanol-Methanol-Gasoline fuel blends
6
1. Introduction:
India has been giving a push for alternate fuels such as Ethanol and, more recently, Methanol to
improve its energy security. India meets 85% of its crude oil requirement, 53% of its natural gas
requirement, and 25% of its coal requirement through imports
3
. Ethanol is primarily used for
blending with gasoline citing twin benefits: substitution of gasoline to arrest rising crude imports
and using a relatively cleaner fuel than gasoline. The Government of India regulates the prices of
ethanol derived from various sources and procures it through the Oil Marketing Companies at
pre-determined prices. However, ethanol primarily derived from molasses and sugarcane juice
can ignite a fuel vs food security debate; Methanol, on the other hand, can be derived from
different sources such as natural gas, coal, naphtha, biomass etc. Natural gas is the most widely
used feedstock to produce methanol across the world accounting for almost 70% of the global
production. India has given a strong push for methanol from coal since coal is abundantly
available in India whereas natural gas is a scarce resource.
India is on the cusp of a major transformational change as it transitions toward a low carbon
economy. The energy policies of the country and those on the anvil demonstrate and focus on
the country’s transition toward cleaner fuels in a sustainable manner. And coal gasification of
domestically available coal to produce methanol (deployed with Carbon Capture & S torage- CCS)
presents an opportunity to accelerate this transition in an energy secure manner.
This document will focus on the economic comparison of ethanol, methanol, and gasoline. Both
ethanol and methanol can be used for blending with gasoline.
3
PPAC, Ministry of Petroleum and Natural Gas, Government of India 7
2. Ethanol:
2.1. Ethanol Production:
Ethanol Blending Program (EBP) has been a priority of the Government, especially since 2014.
The National Biofuels Policy of India in 2018 had set a target of 20% blending with gasoline by
2030. The ethanol production increased from 38 Cr liters in 2013- 14 to 173 Cr. liters in 2019-20,
a jump of 4.5X. Considering the strong performance, the Hon’ble Prime Minister of India set a
new target of 20% blending by 2025-26, reducing the timeline for the target to be achieved, by 5
years.
Ethanol Production and Blending %
Year Production
4
(Cr Liter) Blending %age PSU OMCs
2013-14 38.0 1.53%
2014-15 67.4 2.33%
2015-16 111.4 3.51%
2016-17 66.5 2.07%
2017-18 150.5 4.22%
2018-19 188.6 5.00%
2019-20 173.0 5.00%
Table 2.1 - Source: NITI Aayog
The table 2.1 shows that the supply of ethanol increased at a CAGR of 128% over the last 6 years.
And the blending % with gasoline increased from 1.53% in 2013-14 to 5 % in 2019-20. The
tentative figure for the ethanol production in 2020-21 is 332 Cr liters which is almost double the
production in 2019-20. This will take the blending to 8.5%, a significant jump over the previous
figure of 5% in 2019-20. The current production capacity of ethanol is 684 Cr liters which must
rise to 1500 Cr
5
liters by 2025-26 to achieve an ethanol production of 1016 Cr liters for a 20%
blend with gasoline.
4
The production figures of ethanol in table 2.1 are only for blending, not the overall production of ethanol which
will include the ethanol production for various other uses.
5
NITI Aayog’s Report on Ethanol Blending Program 8
Figure 2.1 - Source: NITI Aayog
As shown in Figure 2.1, Until FY 18, C-Heavy molasses had been the primary source of feedstock
for ethanol production, however, since FY 19, different kinds of raw materials such as B-Heavy
molasses, sugarcane juice and damaged food grains have been used as well to produce ethanol.
2.2. Pricing of Ethanol:
The prices for ethanol produced from sugarcane sources is fixed by the government and
approved by the Cabinet Committee for Economic Affairs (CCEA), whereas the price of ethanol
derived from damaged food grains or rice is fixed by the Oil Marketing Companies. The following
steps taken by the government has given a strong push to the indigenous production of ethanol
6
:
• The Government of India re-introduced the administered pricing for ethanol in 2014.
• Reduction in Goods & Service Tax (GST) from 18% to 5% on ethanol meant for EBP
Programme.
• Interest Subvention Scheme for enhancement and augmentation of the ethanol
production capacity by Department of Food and Public Distribution (DFPD).
6
Department of Fertilizers, Government of India
38
67.4
111.4
66.5
150.5 145.8
74.12
32.6
68.14
14.83
9.5
15.08
0
20
40
60
80
100
120
140
160
180
200
2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20
Break- up of Ethanol Production (Cr Litre)
C-HeavyB-HeavySugarcane JuiceFood Grains 9
• Differential ethanol pricing based on raw material utilized for ethanol production – this
helps to consider the economic viability of ethanol produced from different sources.
Above all, there has been a stable policy and a consistent push for ethanol production in India,
especially since 2014, which has enhanced the production by almost 8X from the 2013-14 levels.
An overproduction of sugar in India has suppressed the sugar prices, hurting the sugar mills which
in turn causes a delay in the payment to the sugarcane farmers. 32 Million Tons (MT)
7
of sugar is
produced in a typical sugar season, whereas the domestic requirement is to the tune of 26-27
MT. Hence, a 6-7 MT of surplus which remains unsold causes a liquidity problem (of around INR
19000 Cr)
8
for sugar mills resulting in arrears for the sugarcane price to be paid to the farmers.
Though, the government is extending financial assistance to export the surplus sugar and can do
so till 2023 as per the WTO arrangements, the government is encouraging the diversion of surplus
sugar to produce ethanol as a long-term solution.
It is expected that in 2021-22, 3.5
9
MT of sugar will be diverted toward ethanol production and
this figure is likely to rise to 6 MT by 2025. If so, this will solve the problem of surplus sugarcane
and the cane price dues of farmers will be cleared on time. Therefore, to encourage ethanol
production, the prices of ethanol derived from various sources have been revised upward a
couple of times in the past 2-3 years. The current prices of ethanol derived from various feedstock
sources is as below:
Table 2.2 - Source: Department of Fertilizers, Government of India
Table 2.2 captures the prices of ethanol derived from various sources. It must be noted that the
above prices for ethanol do not include the subsidies given by the government in the agricultural
sector on electricity and fertilizers for sugarcane production. Though a by-product of the sugar
7
https://pib.gov.in/Pressreleaseshare.aspx?PRID=1674340
8
https://pib.gov.in/Pressreleaseshare.aspx?PRID=1674340
9
https://www.livemint.com/news/india/indias-ethanol-distillation-capacity- to-double-by-2025-
11623757246439.html
Differential Pricing for Ethanol based on different Raw Materials
Different Sources for Ethanol Production INR/Litre
‘C’ Heavy Molasses 45.69
‘B’ Heavy Molasses 57.61
Direct Cane Juice 62.65
Damaged Food Grains/Maize 51.55
Surplus Rice (FCI) 56.87 10
process, molasses, is used for ethanol production, the actual cost incurred by the government to
procure ethanol would be higher than the ones mentioned above. Since, the above prices for
ethanol will incentivize the sugar distilleries to produce ethanol and will further encourage
farmers to produce more sugarcane, the government has to be cautious whether the subsidy
provided for sugarcane inadvertently ends up subsidizing ethanol production.
2.3. Land and Water Requirement for Sugarcane Production:
Sugarcane is one of the most water and land intensive crops. Sugarcane requires between 1,500
and 3,000 litres
10
of water per kilogram of cane. Of the crops grown in India, only rice and cotton
require more water than sugarcane. Sugarcane and rice are grown in 40 per cent of the country’s
gross farmed area but consume about 80 per cent of its irrigation water
11
. India accounts for only
4% of the world’s water resources but houses around 17% of the global population. Thus, India
should be very careful in using its groundwater resources and grow crops that are less water
intensive. On the contrary, India is currently the world’s biggest extractor of groundwater —
more than China and the U.S. combined — accounting for almost a quarter of the total extracted
globally. Between 2000 and 2017 its groundwater depletion increased by as much as 23 per
cent
12
. The situation becomes even more grave for the water scarce regions of the country such
as Marathwada in Maharashtra. Sugarcane is cultivated in only 4% of the state’s cultivable land
but consumes 70% of its irrigation water
13
.
The Government has encouraged to cultivate crops other than sugarcane. A task force at NITI
Aayog recommended that about 3 lakh hectares of area under sugarcane, which yields about 20
lakh tons of the crop, should be used to grow other crops. Therefore, the government must take
a balanced approach taking into consideration- the advantages of using ethanol as an alternate
fuel which helps in oil import reductions and the adverse implications of growing more sugarcane
in India.
10
https://www.futuredirections.org.au/publication/supporting-farmers-in-the-switch-from-sugarcane-could-be-a-
small-piece-of-the-indian-water-crisis-puzzle/
11
https://economictimes.indiatimes.com/news/economy/agriculture/rising-water-crisis-forces-indian-farmers-to-
rethink-their-crops-selection/articleshow/77098970.cms?from=mdr
12
https://economictimes.indiatimes.com/news/economy/agriculture/rising-water-crisis-forces-indian-farmers-to-
rethink-their-crops-selection/articleshow/77098970.cms?from=mdr
13
https://www.financialexpress.com/opinion/maharashtras-water-wars-state-must-discourage-sugarcane-
farming-fix-water-usage/1516661/ 11
2.4. Tax loss incurred by the Government on Ethanol Procurement for EBP:
There is a GST of 5% on Ethanol, whereas gasoline attracts a slew of taxes as shown in the table
below.
Break-up for the Price of Petrol
14
Elements INR/Litre (May 2021
@$66.95/bbl of crude oil price)
Price charged to dealers (excluding excise duty and VAT) 35.99
Excise duty 32.90
Dealers' commission (average) 3.79
VAT (including VAT on dealers' commission) 21.81
Total 94.49
Table 2.3 - Source: PPAC
As shown in table 2.3 , the central government collects a whooping INR 32.90 as excise duty for
every liter of petrol sold, whereas the state government collects a VAT of INR 21.81 per liter.
Since, ethanol has only 5% GST and no other taxes, the central government forgoes the excise
duty for the amount of gasoline replaced by ethanol. It is acknowledged that the state
governments also give up VAT, but because of the complexities on the VAT collected by different
state governments, this analysis focuses on the tax loss incurred to the central government.
14
Petrol and diesel prices at Delhi as per IOCL as on 1st June 2021 12
Table 2.4
Table 2.4 shows the likely tax loss to the central government incurred due to the gasoline
replaced by ethanol for ethanol blending with gasoline. The likely amount comes out to be INR
4757 Cr for 2019-20. The tax loss will increase in the future as the government has a target of
20% ethanol blending by 2025. The amount can increase to more than 5 times as the ethanol
production has to be increased to 1000 Cr. Liters by 2025 from 173 Cr. Liters in 2019-20.
2.5. Food vs Fuel Security:
As India imports around 85% of its crude requirement, the government is focusing on ethanol
blending program to give a push to alternate fuels. Though, the government is encouraging the
use of excess food stocks to be used for fuel production, experts say that India needs to move
ahead cautiously balancing its food security concerns
15
. As shown in figure 2.2, the government
has in the recent years increased the prices of ethanol at which it is being procured. Hence, this
provides an incentive for the distilleries to produce ethanol, which in turn also incentivizes the
farmers to produce more sugarcane. Developments in the West show that there has been a fierce
competition between food and fuel crops for land, which is fixed in supply. The government has
to constantly monitor this trend as it can cause two disruptions – a supply and demand imbalance
for food as more land gets covered for cash crops such as sugarcane and acute water scarcity due
to cultivation of water intensive crops. This becomes even more significant because India holds
only about 2.5% of the global land available, whereas additional 200 million people will be
required to be fed in the next 15 years
16
.
15
https://www.hindustantimes.com/india-news/new- ethanol-targets-reshape- india-s-food-policy-
101624419942244.html
16
http://medcraveonline.com/APAR/APAR-07-00267.pdf
Likely Tax Loss to the Government for the Ethanol sold in 2019-20
Elements
Price of
fuel (INR)
GST@ 5%
(INR)
Tax foregone by
the Central
Government per
liter of gasoline
replaced by ethanol
(INR)
Amount of
Ethanol sold
in 2019- 20
(Cr. liter)
Total Tax loss to
the Central
Government (INR
Cr)
C Heavy Molasses 45.69 2.28 30.62 74.12 2270
B Heavy Molasses 57.61 2.88 30.02 68.14 2046
Direct Cane Juice 62.65 3.13 29.77 14.83 441
Total tax loss
4757 13
3. Methanol:
Methanol is another alternative fuel that can be blended with gasoline in the transport sector
and can be used to produce many downstream chemical and petrochemical products such as
DME, Olefins, Acetic Acid etc. Methanol can be produced through natural gas, coal, biomass,
naphtha etc., however methanol derived from coal is the most economically viable option for
India. India has abundant reserves of coal available at a relatively cheaper price than natural gas
or crude oil, 55% and 85% of which are imported respectively.
Break-up of Coal Resources (MT) in India – Category wise as of 1.04.2019
Coal Type Proved Indicated Inferred Total % share
Prime Coking 4,668 645 0.00 5,313 1.6
Medium Coking 14,876 11,245 1863 27,984 8.6
Semi Coking 519 995 193 1,708 0.5
Sub-Total of Coking 20,063 12,885 2056 35,004 10.7
Non-Coking 1,34,958 1,27,494 27,416 2,89,868 88.8
Tertiary Coal 594 121 909 1,624 0.50
Grand Total 1,55,614 1,40,501 30,381 3,26,496 100.00
% share 48% 43% 9% 100%
Table 3.1 - Source: Ministry of Coal
Table 3.1 shows that India 326 billion tons of coal reserves of which almost 50% are proved
reserves, meaning technically and commercially viable to produce. India, with a 10% share of
global proved reserves, has the 5
th
largest proved reserves of coal in the world
17
.
17
British Petroleum Statistical Review 2020 14
Figure 3.1 – Source: BP Statistics 2020
The coal reserves of India will likely last for 140 years at a consumption rate of that in 2019.
Therefore, India must use its domestic natural resource, coal, in the most optimal way given that
the use of coal is only likely to decline in the future.
3.1. Why is Methanol a good option as an alternative fuel?
India is already in the midst of a transition toward a low carbon economy. The share of coal in
energy mix of India is likely to decline to 40% by 2040 from 46% currently. Moreover, it would
not be surprising to see the sanctions tightening on the coal sector globally. Therefore, using
domestic reserves of coal sustainably, gasifying it along with using CCS, provides an opportunity
for India to use its natural resource at a relative discount to other fuels such as oil or natural gas.
Coal gasification produces 31% less CO
2 emissions, 98% less SO x emissions, and 84% less NOx
emissions relative to a coal fired power plant. And if CCS is used, the emissions can practically to
brought down to zero. Therefore, developing coal to chemicals industry in a sustainable fashion
is much in the interest of India.
390
294
140
132
65
39 37
0
50
100
150
200
250
300
350
400
450
R/P Ratio of Different Countries as of 2019 (Years)
USAustraliaIndiaWorldIndonesiaSouth AfricaChina 15
Following are the 4 primary drivers for gasifying coal in India:
Also, coal gasification is a less emissions intensive process relative to the traditional combustion
of coal in power plants.
Figure 3.2
Figure 3.2 entails the 4 primary drivers for coal gasification in India. The low cost of coal in India
provides an opportunity to produce a range of products from coal such as methanol, olefins,
DME, and others at a competitive price.
The United States had successfully launched a methanol (M15 and M85) blending program
primarily driven by air quality considerations in California in 1980s and 1990s. 15,000
18
M85 flexi-
fuel vehicles were sold or operated in California during that time. However, Methanol did not
become a successful alternate fuel as its introduction coincided with a period of low gasoline
prices which faded away the economic incentive.
The government has launched the commercial coal mining in India with an objective to liberalize
the sector to bring in more competition and increase production. In the future commercial coal
block auctions, coal gasification has been incentivized as there is a provision for 20% rebate in
revenue share provided the mine developer uses at least 10% of its production for coal
gasification.
18
Methanol: Properties and Uses report by SGS Inspire 16
3.2. Status of Methanol in India:
Figure 3.3 – Source: Chemical and Petrochemical Statistics 2019
It is evident from figure 3.3 that 90% of the methanol demand in India is met through imports,
whereas the capacity utilization of domestic plants in India hovers around 45-50%. This is so
because the domestically produced methanol
19
(from natural gas) is not competitive with the
imported methanol, largely from the gulf
20
where natural gas is abundantly available at very low
prices. The consumption of Methanol has grown at a CAGR of 7% over the last 5 years. There is a
high latent demand for methanol in India. If India were to domestic ally produce methanol from
coal at a competitive price, methanol can be readily consumed in the chemical and petrochemical
sector.
19
Imported LNG is primarily used to produce methanol in India. The price of imported LNG at the plant gate which
includes regasification costs, transportation costs and taxes does not cost less than $8-10/mmbtu, even during low
natural gas price environments. The price of natural gas in the West Asia and North America hovers between $1.5-
3/mmbtu which is significantly lower than that in India. Therefore, it is highly unlikely that India will be able to
compete with the West Asia n or North American producers of methanol if the feedstock is natural gas. However,
the economic viability completely changes if India shifts to a coal to methanol route.
20
Almost 100% of methanol is imported from the gulf. For example, in 2018, 2/3
rd
of the methanol was imported
from Iran and another 25% from Saudi Arabia. The rest comes from Oman, Qatar, and Russia.
0.474 0.474 0.474 0.474 0.474
0.210
0.163 0.176
0.26 0.27
1.80 1.83 1.8
2.03
2.25
0%
10%
20%
30%
40%
50%
60%
0
0.5
1
1.5
2
2.5
2014-15 2015-16 2016-17 2017-18 2018-19
Status of Methanol in India
Capacity Production Consumption Capacity Utilization (%) 17
Figure 3.4 – Source: Chemical and Petrochemical Statistics 2019
The Methanol imports have grown at a CAGR of 5.4% and the import value is to the tune of $700
Million in 2018- 19. Therefore, domestic production of methanol derived from coal will be an
opportunity for India to substitute methanol imports.
Methanol can be blended with gasoline, so it provides an opportunity to substitute gasoline.
Different volumes of Methanol blends such as M5, M10, M15, M85 or M100 can be used
depending upon the application. In 2016, China blended around 21 MT of methanol with
gasoline, whereas India has not even started using methanol as a transportation fuel
21
. 15
provinces of China are already using different Methanol blends (M15 to M100) as transportation
fuel and the trend is likely to grow.
China has successfully commercialized the coal to methanol projects and is the world’s largest
producer and consumer of Methanol. China has developed a huge MTX industry i.e., a methanol-
based platform where methanol is converted to olefins, gasoline, aromatics, dimethyl-ether, and
methyl tertiary butyl ether. The large number of Coal to X plants in China not only enhances its
energy security but also opens avenues for chemical and petrochemical sectors where methanol
is a major feedstock.
21
India’s Leapfrog to Methanol Economy, NITI Aayog, publ ished by Dr. V.K. Saraswat and Ripunjaya Bansal
1.59
1.67
1.62
1.77
1.97
0
1000
2000
3000
4000
5000
60000.00
0.50
1.00
1.50
2.00
2.50
2014-15 2015-16 2016-17 2017-18 2018-19
Methanol Imports -Quantity & Value
Net Imports (MT) Net Imports (INR Cr) 18
3.3. Pricing of Methanol:
Since 90% of methanol requirement is met through imports, India is exposed to the price and
supply volatilities of the international market. The price of imported methanol depends on the
price of natural gas, feedstock for methanol in the Gulf and West, and the supply and demand
dynamics.
Figure 3.5: Source – Methanex
Figure 3.5 shows the price volatility of methanol in international markets. The above are the
prices posted by Methanex, one of the world’s largest producers of methanol. Over the past
decade, the price of methanol has varied between INR 20-40 per Kg, whereas between July, 2018
and July, 2020, the price varied from INR 24-36 per kg. Though, during the covid-19 pandemic,
the prices crashed to INR 16-19/Kg, but bounced back within a period of 3-4 months. Therefore,
domestic production of methanol from coal will ensure a steady supply at a competitive narrow
price range relative to the imported methanol.
31
32
24
22
39
33
31
23
27
24
19
38
24
36
22
16
0
5
10
15
20
25
30
35
40
45
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Oct-18
Jan-19
Apr-19
Jul-19
Oct-19
Jan-20
Apr-20
Jul-20
International Methanol Prices (INR/kg)
Methanex European Posted Contract Price/KgMethanex Asian Posted Contract Price/Kg 19
Figure 3.6 – Source: CMIE database
Figure 3.6 gives the price of domestic methanol derived from natural gas. Since 90% of methanol
requirement in India is met through imports, domestic production becomes viable only when the
import prices are high enough to support the high cost of domestically produced methanol from
natural gas. The high cost of methanol production is attributed to a high cost of feedstock, which
is natural gas. RLNG is primarily used to produce methanol which is not below $8-10/mmbtu by
the time gas reaches the plant gate.
3.4. Cost of Domestically produced Methanol from Coal:
Based on the internal research done by the Ministry of Coal in collaboration with private
investors, coal gasification companies, and technical experts, the price of methanol is likely to
hover around INR 22-25/Kg
22
or INR 17.5 – 19.8 per liter (density of methanol – 0.791 kg/liter).
Since, India does not have a commercial coal to methanol plant yet, it would be difficult to come
up with a definite price of methanol derived from coal. For the analysis her e, we assume a
conservative price of methanol i.e., INR 19.8/liter.
As evident from figure 2.2, the cost incurred to the government for ethanol being procured on a
per liter basis at INR 45.69 – 62.65 is much higher than that of methanol. On an energy equivalent
basis, 1.28 liters of methanol will be required to produce the same amount of energy as available
from a liter of ethanol. Therefore, 1.28 liters of methanol will cost INR 25.3, whereas the same
amount of energy is available for INR 45.69 – 62.65 in case of ethanol. In the subsequent sections,
a comparative economic analysis for ethanol, methanol and gasoline is done.
22
This price assumes a coal price of INR 1000/ton and assumes a return of 10% for the mining company. Since, the
Ministry of Coal is in the midst of inviting tenders for coal to methanol projects, we refrain from giving more
details. However, the price of methanol should not vary much, might be another INR 2 per kg higher or lower.
20.1
24.7
31.7
33.6
41.8
32.4
28.2
28.7
38.8
37.4
26.7
15
20
25
30
35
40
45
2009-102010-112011-122012-132013-142014-152015-162016-172017-182018-192019-20
Domestic Methanol Prices (INR/Kg) 20
4. Vehicular Fuel Efficiency and Emissions:
Various research studies have been conducted to compare the fuel efficiencies of ethanol,
methanol, and ethanol-methanol fuel blends with gasoline. The experimental results indicate
that the low methanol and ethanol blends up to 30% volume have a similar calorific value to
gasoline. For higher methanol and ethanol blends, the calorific value of blended fuels decreases
significantly, meaning the efficiency of blended fuels decrease.
Figure 4.1: Source: Report on ‘Methanol: Properties and Uses’ by SGS Inspire
It is evident from figure 4.1 that the calorific value of M5-M25 blends with gasoline is similar to
that of unblended gasoline. And similar are the results for lower ethanol blends. Various studies
indicate that few changes are required for methanol-gasoline blends to be used in Spark ignition
(SI) engine. Though, following changes were done for M15 vehicles in China
23
:
• Fuel nozzles of the carburetor were enlarged to adjust the AFR to the stoichiometric value
of the actual blend.
• The mixture was heated before it entered the engine at cold start.
23
The experimental results from the research illustrated in the report ‘Methanol: Properties and Uses’ by SGS
Inspire have been taken. 21
• The carburetor and fuel line were modified to avoid vapor locks and damage to some of
the parts (plastic and rubber, especially) because of corrosion and material degradation.
A research study was undertaken by Automotive Research Association of India (ARAI), Indian
Institute of Petroleum (IIP) and Indian Oil Corporation (R&D) in 2014-15 to determine the
suitability of E20 ethanol blend fuel in vehicles. Though, some minor challenges occurred, there
was no severe malfunction or stall observed at any stage of vehicle operation.
It is highly recommended that a research must be undertaken in India to evaluate the vehicular
performance for methanol-gasoline blends.
With regards to emissions, the methanol gasoline blends have the lowest hydrocarbon (HC) and
carbon monoxide (CO) emissions when compared with ethanol gasoline blends or methanol-
ethanol-gasoline blends. The Methanol fuel blends (3%- 10% volume) show lower CO and UHC
emissions than the ethanol blended fuels by about 6% and 7 %, respectively.
Emissions Reduction Potential for Ethanol Gasoline Fuel Blend
Two-Wheelers Two-Wheelers
Emissions Gasoline E10 E20 E10 E20
Carbon Monoxide
(CO) Baseline 20% lower 50% lower 20% lower 30% lower
Hydrocarbons (HC) Baseline 20% lower 20% lower 20% lower 20% lower
Oxides of Nitrogen Baseline
No significant
trend 10% higher
No significant
trend same
Table 4.1: Source – NITI Aayog’s report on Roadmap for Ethanol Blending in India
The table 4.1 gives the emissions reduction potential for ethanol gasoline blends in comparison
to unblended gasoline fuel. Though, there is a reduction in CO and HC emissions for ethanol
gasoline fuel blends, there is no significant trend for nitrogen oxides.
22
5. Comparative Analysis for the cost of Ethanol, Methanol, and
Gasoline:
In the previous sections of the document, we have discussed the tax loss incurred to the
government due to the amount of gasoline replaced by ethanol for blending. Moreover, the likely
price of domestically produced methanol from coal is also discussed. Therefore, a comparative
analysis for the cost of ethanol and methanol is done with gasoline on an energy equivalent basis.
Table 5.1
It can be clearly seen from table 5.1 that methanol is much more economically competitive
relative to ethanol when considering blending with gasoline. Since the calorific values of ethanol,
methanol, and gasoline are different, the amount of energy received from each unit of fuel is
24
Ethanol derived from different sources have different prices. Since, 100% of ethanol was derived from C-Heavy
molasses until FY 18 and 75% of it in FY 19 and 45% of it in FY 20, the price of ethanol used is for C-Heavy molasses.
However, table 2.2 gives prices of ethanol derived from different sources.
25
This is the price for ethanol derived from C-heavy molasses, which is the major source for ethanol production.
The figure 2.1 gives a production break-up source wise. This price does not include GST.
26
Table 2.3 gives the price of gasoline charged to dealers excluding any taxes (excise duty or VAT)
27
Since, there is no commercial coal to methanol plant in India, government is yet to decide the tax structure for it.
28
This includes an excise duty of INR 32.90, VAT of INR 21.81, and the dealer’s commission of INR 3.79. The break-
up for the price of gasoline is given in table 2.3.
29
The tax on methanol is not included as this policy decision is open for discussion.
Cost Comparison of Ethanol and Methanol with Gasoline
S.No Parameters Ethanol
24
Methanol Gasoline
(Petrol)
#1 Calorific Value (Kcal/Kg) 7100 5500 11,110
#2 Density (kg/litre) 0.789 0.791 0.750
#3 Price of 1 liter of fuel (INR/liter) 45.69
25
19.8 35.99
26
#4 Energy Equivalent units for 1 liter of Petrol 1.48 1.90 1
#5 Price paid by the government (excluding
taxes) for different fuels to replace 1 liter of
Petrol on energy equivalent basis (INR/liter)
67.62
(#3*#4)
37.62
(#3*#4 )
35.99
(#3)
#6 Tax on respective fuels (INR/liter) 2.28 (@ 5% GST) undefined
27
58.50
28
#7 Price (including taxes) paid by consumer for
different fuels to replace 1 liter of Petrol on
energy equivalent basis (INR/liter)
69.9
(#3*#5 + #4)
37.62
29
(#3*#5)
94.49
(#3 + #4) 23
different. Gasoline has the highest calorific value followed by ethanol and methanol. This means
that on an energy equivalent basis, we will need 1.48 liters of ethanol and 1.90 liters of methanol
to get the same amount of energy as derived from a liter of gasoline. Therefore, on an energy
equivalent basis, ethanol is rather much expensive than methanol . It is to be noted that we have
used the price of ethanol derived from C-heavy molasses which is the cheapest. However, if the
price of ethanol derived from B-heavy molasses and sugarcane juice is used, the cost of ethanol
to replace a liter of gasoline will be even higher on an energy equivalent basis. Even if a tax rate
of INR 58.50 is levied on methanol, its price will become INR 96.12 on an energy equivalent basis
with gasoline which will be in the range of current gasoline prices prevailing in India. A high
gasoline environment incentives alternate fuels, thus, this is the right opportunity to establish
methanol as a commercial alternate fuel in India.
6. Conclusion:
From the above analysis, it is clear that methanol is much cheaper than ethanol. A liter of
methanol costs around INR 19.8, whereas the cost of ethanol lies between INR 45.69 – 62.62 per
liter depending upon the source as shown in figure 2.2. Since, the calorific value of ethanol is
7100 Kcal/Kg, whereas that of methanol is 5500 Kcal/kg, 1.28 liters of methanol would be
required to produce the same amount of energy as derived from a liter of ethanol. Therefore, on
an energy equivalent basis, 1.28 liters of methanol will cost INR 25.3 to replace a liter of ethanol.
When comparing the cost of ethanol, methanol, and gasoline, methanol is the cheapest alternate
fuel available. The cost of gasoline including taxes is INR 94.49 per liter and the cost of ethanol
including taxes on an energy equivalent basis with gasoline is INR 69.9 as shown in table 5.1.
Whereas the cost of methanol on an energy equivalent basis with gasoline is INR 37.6 as evident
from table 5.1. Since, there is no commercial coal to methanol plant in India, the government is
yet to define the tax structure on methanol. However, even if the government levies a tax of INR
58.50 on methanol, it’s price will become INR 96.12 on an energy equivalent basis with gasoline
which is very much in the range of current gasoline prices prevailing in India. Unlike ethanol,
methanol will not ignite a food vs fuel security debate. Rather, using coal to produce methanol
will help India monetize its domestic resources to reduce crude oil imports.
A high gasoline price environment incentives alternate fuels such as methanol and ethanol.
Therefore, India must deploy large scale coal to methanol plants (preferably deploying CCS) to
use methanol as an alternate fuel for blending. This will support and encourage the existing
ethanol blending program.
A National Coal Gasification Mission must be formulated to evaluate the status of coal
gasification in India and suggest a roadmap for a sustainable coal to chemicals and
petrochemicals industry, including coal to methanol. This will give a strong push to atmanirbhar
Bharat as domestic coal will be used to produce different chemicals and petrochemicals. 24
Disclaimer: Opinions and recommendations in this article are exclusively of the authors and not
of any other individual or institution.