The search for an alternate fuel is not a new venture and many countries have attempted to use methanol in some proportion or other with regular petrol to reduce the cost of petrol which is inherently connected with the day to day living of a human being on earth.

Niti Aayog analyzed the issue in detail and got a report titled “Methanol: A Competitive Alternate Fuel” By Dr. V.K Saraswat1 and Ripunjaya Bansal, reputed economists. Let us learn how to get more mileage and utility value for investment. Reference for report is given at the end of this article.

Its contents are as under:

1. Introduction, 2. Ethanol: Ethanol production, Ethanol pricing, land and water requirement for sugarcane production, Tax loss incurred by government ethanol procurement for EBP, Food vs Fuel Security.

Methanol: why is methanol a good option as an alternative fuel? Status of methanol in India, pricing of methanol, cost of Domestically produced methanol from coal, vehicular fuel efficiency and emissions 4. Vehicular Fuel Efficiency and Emissions, 5. Comparative Analysis for the cost of Ethanol, Methanol, and gasoline 6.0 Conclusion.

Niti Aayog Methanol– An alternate fuel


With imports, India meets its requirements for 85% of its crude oil, 53% of its natural gas, and 25% of its coal. Ethanol mixed with various proportions of gasoline reduces the spiraling import bills for crude and relatively cleaner fuel.

India has been giving a push for alternate fuels such as Ethanol and, more recently, Methanol to improve its energy security.

 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.


How is it produced? Is it imported?

Production of ethanol from agriculture is affected in two ways:

  • The prices for ethanol produced from sugarcane sources is fixed by the government and approved by the Cabinet Committee for Economic Affairs (CCEA).
  • The price of ethanol derived from damaged food grains or rice is fixed by the Oil Marketing Companies.

Well, it is not clear why does ethanol’s production get anything to do with gasoline products which are highly imported?

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.

The following progression in its production combined with its blending with gasoline will reveal the progress so far made.

Ethanol Production and Blending %

Year     OMCs 2013-14 Production (Cr Liter)      38.0 Blending %age PSU 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%

It may be observed from above data that with a mere production of 38.0 crores of liters in 2013-14, we have reached 173.00 cr. Liters of ethanol with blending % age of 5.00%. By 2025-26, the ethanol production may reach 1016 liters for a blending ratio of 20%.

It may be of interest to know that Until FY 18, C-Heavy molasses was 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.

Let us learn who fixes the price of ethanol.

The pricing also depends the production of ethanol and steps taken by the government to increase its production.

The government has taken the following steps:

  • Reintroduction of the administered pricing for ethanol in 2014.
  • Ethanol meant for EBP program, got its Goods &Services Tax reduced from 18% to 5% by the government.
  • Differential ethanol pricing based on raw material utilized for ethanol production.

By having a consistent policy to increase the production of ethanol by 8X since 2013-14, the government has shown its intention to reduce the imports and add it with gasoline.

To obviate the timely payment of sugarcane to agriculturists, the government is encouraging the production of more ethanol through the diversion of 6 MT of sugar by 2025.

Kindly refer to table 2.4 on page 12 of the report. The following facts have been collected from there.

“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.”

However, it must be noted that to reach the goal of 20% blending of ethanol with gasoline, the government must prepare for this tax loss so that import substitute can be developed over a period.


Why methanol blending with gasoline  is needed urgently and what are the major benefits to the economy? Has any- one used it before and got enormous benefits so that India can venture into production of methanol and immensely gain by blending it with gasoline?

Let us break our arguments in parts.

So far, we haven’t used blending of methanol with gasoline though the success story of China with its phenomenal performance is part of folklore of the world.

Let us get illumined with its current success.

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.

It is of interest to know that in 2016, China blended around 21 MT of methanol with gasoline, whereas India has not even started using methanol as a transportation fuel. 15 provinces of China are already using different Methanol blends (M15 to M100) as transportation fuel and the trend is likely to grow.

Exactly, where do we stand?

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 eliminate import of methanol.

Let us look at methanol’s price over the last two decades.

Domestic Methanol Prices (INR/Kg)

2009-2010 – 20.1, 2013-14 – 41.8, 2019-20 – 26.7.

Why there is variation in prices which are sometimes very volatile?

 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.

However, based on the internal research done by the Ministry of Coal in collaboration with other experts, the price of methanol is likely to hover around INR 22-25/Kg22 or INR 17.5 – 19.8 per liter (density of methanol – 0.791 kg/liter). So far, we haven’t got any plant to produce methanol from coal.

Why coal is aligned with methanol whenever we talk of its production here?

Let us go back to page 15 of the report and read the argument given for gasifying coal in India.

Why to use coal for production of methanol?

Abundant proven reserves of 155 BT& a RP ration of 140 years.

Then coal to chemicals, petrochemicals, fertilizers etc.

Many high valued products can be produced through coal gasification process like methanol, DME, Olefins, Ammonia, Acetic acid etc.

Methanol can be easily blended with gasoline and not many changes required for M15. DME can be blended with LPG and it is known that methanol helps to produce DME.

Import of olefins, formaldehyde and others can be avoided by producing methanol.

What are the environmental considerations for a highly polluted nation like ours?

Coal gasification emits less than coal combustion. Things obtained from methanol like olefins or formaldehyde are clean.

To give as an incentive, in future commercial coal block auctions, there is a provision for 20% rebate in revenue share provided the mine developer uses at least 10% of its production for coal gasification.

Let us compare the production cost of ethanol vis-à-vis methanol.

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.

It is pleasing to learn that 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.


Our detailed analysis of ethanol, methanol, various ways of production of these alternate fuels and the reasons to venture into these particularly in case of methanol where no coalification plants set up so far lead us to the following conclusion:

  • 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 whereas the cost of methanol on an energy equivalent basis with gasoline is INR 37.6 as evident from closer look at the report.
  • The performance of another Asian giant, namely, China dares us to enter methanol production at the earliest to reduce import of gasoline which has been talked about for ages with no resultant solutions.
  • Exceptional results in road construction, meeting defence needs by local production or space exploration invite urgent setting up of a National Coal Gasification Mission 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.

Why not compare us with China and travel new routes for import substitution of gasoline?

Urgent time bound program is a must.



Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by a professional

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September 2021