Motilal Oswal flags NTPC Coal-to-Gas boost, but cautions on execution

According to MOFSL, the proposed 5-10 mt/annum coal-to-SNG plant marks a strategic pivot that may improve PLFs, boost energy security, and potentially create new revenue streams.

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Motilal Oswal on NTPC: NTPC’s plan to build a large coal-to-synthetic natural gas (SNG) facility could open a new chapter in how India’s biggest power generator uses its coal reserves and runs its gas-based plants. 

 

According to Motilal Oswal, the proposed 5-10 million tonnes per annum coal-to-SNG plant marks a strategic pivot that could improve plant load factors (PLFs), boost energy security, and potentially create new revenue streams. Yet, the brokerage remains cautious, citing execution challenges and limited valuation upside in its green energy arm.

 

NTPC currently operates 4GW of gas-fired capacity, about 5 per cent of its total installed base. However, utilisation of these assets has historically been weak, with Plant Load Factor (PLFs) ranging from 1.76 per cent to 23.79 per cent across FY23-FY25, averaging just 7.73 per cent. A dedicated supply of SNG could help run these plants more flexibly, particularly during peak demand, thereby aiding grid stability. 

 

With the project expected to take four to five years from conceptualisation to commissioning, NTPC intends to use high-ash coal sourced from its captive mines, reducing dependence on volatile imported LNG.

 

The strategic rationale extends beyond operational benefits, analysts noted. Producing SNG from domestic coal strengthens energy security by shielding NTPC from global LNG price swings. 

 

Coal gasification also burns cleaner than raw coal, particularly when paired with carbon-capture technologies, and aligns with government support for cleaner coal pathways.   ALSO READ | Nomura maintains 'Buy' on M&M, identifies the automaker as its top OEM pick 

India’s policy thrust targets 100 million tonnes of coal gasification by 2030, supported by abundant domestic coal reserves of around 300 billion tonnes. The Ministry of Coal has approved ₹8,500 crore in incentives across three project categories, ranging from large PSU-led proposals to smaller, demonstration-scale plants. Additional support includes a 50 per cent revenue-share rebate for coal used in gasification at upcoming commercial coal auctions.

 

NTPC’s research arm, NETRA, is leading the project under the company’s broader ‘Greening the Coal’ strategy, which covers coal gasification, carbon capture, and cleaner thermal technologies. Based on internal estimates, producing SNG would cost about $10-12 per mmBtu, broadly competitive with current spot LNG prices. 

 

However, Motilal Oswal noted that the global gas market is heading toward oversupply, with LNG export capacity set to expand sharply between CY26 and CY28. Since many long-term gas contracts are linked to crude prices, and crude itself faces oversupply pressures, imported LNG could become cheaper in the years ahead, posing an economic risk to SNG economics.

 

Beyond power generation, the coal-to-gas pathway opens doors to value-added applications. Surplus SNG can feed sectors such as petrochemicals and fertilisers, major consumers of gas in India. Gasification also produces syngas, which can be further processed into methanol and downstream petrochemicals such as ethylene, propylene, and acetic acid. India imports roughly 95 per cent of its methanol and 15 per cent of its urea demand, suggesting room for domestic substitution even though NTPC itself is not present in these businesses.

 

Globally, coal gasification is especially prominent in China, where the coal-to-chemicals sector consumes about 200 million tonnes of coal annually. This contributes roughly 90 per cent of the country’s ammonia and 70 per cent of its methanol output. While Western gasification technologies are typically designed for low-ash coal (around 25 per cent), India’s high-ash reserves, often above 40 per cent, necessitate local technology development, which NTPC and its R&D arm are pursuing.  ALSO READ | Why is JM Financial upbeat on Belrise Industries? Starts coverage with Buy 

Other public sector entities are also moving into coal gasification. Coal India, for example, has proposed investing around ₹2,000 crore in a coal-to-SNG project in West Bengal’s Sonepur Bazari area, in partnership with GAIL. The estimated capex for this project is ₹13,050 crore, following a 70:30 debt-equity structure, with Coal India holding a 51 per cent stake.

 

While Motilal Oswal views NTPC’s long-term strategic direction positively, it remains wary of near-term execution risks, particularly at NTPC Green Energy Ltd (NGEL). The brokerage sees limited room for valuation rerating in NGEL, which contributes about 15 per cent to its sum-of-parts (SoTP) valuation. 

 

NTPC’s ambitious capacity-expansion roadmap, to reach 244GW by 2037 with additions of 9.8GW, 9.6GW, and 10.5GW over FY26-FY28, also carries execution uncertainty.

 

The brokerage reiterated its ‘Neutral’ rating to the NTPC stock, with a target price of ₹370. Its SoTP valuation assigns ₹201 to NTPC’s standalone, coal, and other businesses (based on 2x Dec’27E P/B), ₹18 to other subsidiaries, and ₹45 to joint ventures and associates. The NGEL stake is valued at a 25 per cent discount to its current market price, reflecting constrained rerating potential.

 

Therefore, analysts at Motilal Oswal concluded that while the coal-to-SNG initiative could boost NTPC’s operational flexibility and open new revenue opportunities, the long gestation, execution challenges and global gas-market dynamics temper its near-term investment appeal. 

Disclaimer: Target price and stock/sector outlook has been suggested by Motilal Oswal. Views expressed are their own.