Material Insights · Understanding the Material World

Methanol and Thermal coal

China makes most of its methanol, the world's largest share, by gasifying coal, so Chinese coal costs shape the marginal tonne in Asia; the route is cheap where coal is cheap but emits several times more carbon than gas, and India now plans to copy it.

Methanol (chemical) and Thermal coal (energy): 5 relationships.

How they are linked

1. Coal gasification feedstock

Physical flow · Strong · Thermal coal to methanol

Coal is gasified with oxygen and steam into synthesis gas, which is then converted to methanol exactly as gas-based syngas is, so coal can stand in for gas as the feedstock.

  • about 35% of world methanol made mainly from coal (2019)
  • about 75% of China's methanol capacity that is coal-based (2025)
  • over 110 Mt China's methanol capacity, about 60% of the world total (2025)

Coal-based methanol is concentrated in China, which is short of gas but has vast coal reserves. Chinese industry data put coal-to-olefins capacity, a large outlet that turns methanol into plastics, at about 19 Mt.

Sources: IRENA and Methanol Institute; Bloomin Global; Methanex (SEC filing)

2. Price link: feedstock in China

Cost and price · Medium · Coal leads methanol

Because the largest producer uses coal, Chinese coal prices set the cost of much of the world's marginal methanol, and both prices also ride the same energy cycle.

  • 0.17 monthly change correlation
  • 0.76 12-month change correlation
  • 2 months lag at which the link is strongest

The monthly link is weak (0.17) but yearly changes correlate at 0.76, with methanol following coal by about two months. The site uses Australian coal and a broad US organic chemicals index as proxies, so the high fitted elasticity (2.09) mostly reflects the shared energy cycle rather than a direct cost pass-through.

Sources: Material Insights (World Bank, FRED, IMF data)

3. Coal route versus gas route

Substitution · Medium · Coal-based methanol competes with gas-based

Coal and gas routes make the same molecule, so Chinese coal-based plants compete directly with Gulf and Trinidad gas-based exporters for Chinese and Asian buyers.

  • USD 100 to 250 production cost per tonne, depending on feedstock

When Chinese coal is cheap, coal-based plants can run harder and China needs fewer imports; when coal is dear, more gas-based imports are needed. The balance between the two routes is therefore a swing factor in Asian methanol prices.

Sources: IRENA and Methanol Institute; HyCO1

4. Carbon intensity of the coal route

Policy · Rising · Climate rules weigh on coal methanol

Gasifying coal releases far more carbon dioxide per tonne of methanol than reforming gas, so carbon pricing and low-carbon fuel rules hit the coal route hardest.

  • 2.6 to 3.8 kg CO2e per kg of methanol, coal route
  • about 0.5 kg CO2e per kg of methanol, gas route
  • 3 to 4 times carbon intensity of coal-based versus gas-based methanol

Chinese industry reports say coal-to-methanol is to be brought into China's emissions trading scheme, which would raise its cost. Buyers seeking low-carbon methanol, for fuel or chemicals, are unlikely to choose coal-based product.

Sources: IRENA and Methanol Institute; HyCO1; Bloomin Global

5. India's coal gasification plan

Transition · High in India · India plans coal-to-methanol

India has large coal reserves but little cheap gas and imports nearly all its methanol, so it is backing coal gasification to make methanol, ammonia and other chemicals at home.

  • 100 Mt coal to be gasified by 2030 (target)
  • Rs 8,500 crore incentives for coal and lignite gasification approved by Cabinet, January 2024
  • about 70 to 75% of China's methanol made by coal gasification (2026)

Coal India, Indian Oil, GAIL and BHEL are among the firms with coal-to-chemical projects, and in May 2026 the government approved a larger gasification plan, reported at about USD 3.9 billion (Rs 37,500 crore), to cut reliance on imported fuels after the Gulf disruption. Argus reported that methanol from the first plants is not expected to match world prices, so sales are limited to the domestic market.

Sources: Argus Media; Crisil Intelligence; Reuters via Channels TV; Press Information Bureau, Ministry of Coal

For investors

Key learnings

  1. Chinese coal economics, as much as Gulf gas, shape the marginal tonne of Asian methanol, so Chinese coal prices and coal policy are leading indicators for methanol.
  2. The coal route carries the highest carbon intensity, so carbon pricing in China or fuel rules abroad can strand coal-based capacity faster than its cost advantage suggests.
  3. India's coal-to-methanol projects are policy-supported and not expected to match import prices, so their returns depend on incentives and offtake rules rather than world prices.

What to track

  • China thermal coal price (Qinhuangdao 5,500 kcal): Cheaper coal raises Chinese methanol output and cuts import demand (Daily · China Coal Transport and Distribution Association, exchanges)
  • China methanol imports and coal-to-olefins operating rates: Falling imports signal coal-based plants running hard (Monthly · China customs, trade press)
  • Indian coal gasification project awards and financial close: Progress shows whether domestic methanol will materialise (Quarterly · Ministry of Coal)

For policymakers

Key learnings

  1. Coal gasification can cut India's methanol imports, about 98% of supply, but swaps import dependence for higher emissions per tonne.
  2. China built coal-to-methanol at scale on cheap domestic coal; India's first coal-based methanol is not expected to match world prices, so the programme needs sustained support.
  3. Coal-based methanol emits about 2.6 to 3.8 kg CO2e per kg against about 0.5 kg for gas-based, so a coal programme risks higher carbon costs later unless it plans for carbon capture.

What to track

  • Coal gasified under the National Coal Gasification Mission (Mt): Measures progress towards the 100 Mt by 2030 target (Annual · Ministry of Coal)
  • Methanol import volumes: Shows whether domestic coal-based output is displacing imports (Monthly · DGCIS)
  • China emissions trading scheme coverage of coal chemicals: Inclusion raises the cost of the largest competitor route (As announced · Ministry of Ecology and Environment, China)

India

India imports about 98% of its methanol; its coal gasification mission targets 100 Mt of coal gasified by 2030, with methanol among the intended products, backed by Rs 8,500 crore of incentives approved in January 2024 and a larger plan approved in May 2026.

Sources

  1. Innovation Outlook: Renewable Methanol, IRENA and Methanol Institute (2021)
  2. Methanol's Moment: How New Pathways and Energy Benchmarks Are Redefining a Critical Chemical (Part 1), HyCO1 (2025)
  3. China's coal chemical industry enters new phase of low-carbon transformation and strategic reshaping, Bloomin Global (2025)
  4. Methanex Corporation Annual Information Form 2023, Methanex (SEC filing) (2024)
  5. India seeks methanol, DME output from three plants, Argus Media (2024)
  6. Methanol: move away, Crisil Intelligence (2026)
  7. Price correlation, Material Insights, Material Insights (World Bank, FRED, IMF data)
  8. India approves coal gasification plan to weather Mideast war crunch, Reuters via Channels TV (2026)
  9. Cabinet approves the scheme for promotion of coal/lignite gasification projects, Press Information Bureau, Ministry of Coal (2024)