South African-based petrochemical giant Sasol and Indian diversified industrial giant the Tata Group's plans to establish India's first coal-to-liquid plant has hit a snag.

After last week's news that the Indian government was examining the possibility of allocating coal blocks to the Sasol-Tata project, India's Economic Times reported that the government appears to have put the US$8-billion project on the backburner for now.

Surging global oil prices have encouraged emerging economies with access to large coal resource to embrace CTL technology as a means of reducing their reliance on imports.

The Economic Times reported that differences have arisen among the inter-ministerial group set up to develop the roadmap that would allow the country to commercialise the CTL process.

Tata's collaboration with Sasol

According to the report, the main argument raised by those opposing the liquefaction projects, particularly Tata's collaboration with Sasol, is that India's coal resources should be reserved for use by the power sector rather than being offered for projects that put it to "unproductive usage without aiding the country's energy security", an official was quoted as saying.

A CTL plant typically consumes up to 30 million tons a year of extractable coal reserves, half of which could support a coal-based power project generating about 4000MW.

"With the country's first liquefaction project in a limbo, it is unlikely that other applications would be considered by the government," the report stated.

This means government clearance for projects proposed by the Reliance Industries, Essar, Jindal Steel & Power and Adani group are likely to be delayed.

Country has coal reserves of 250bn tonnes

For its part the coal ministry has reportedly asked Central Mine Planning and Design Institute, a subsidiary of Coal India, to identify coal blocks for allotment to companies interested in coal-to-oil projects.

It is estimated the country has coal reserves of 250 billion tonnes and proven reserves of 93 billion tonnes.

"With the country's 80-90 percent of future power projects coming up on coal, the fuel could hardly be spared for liquefaction projects that have yet to become popular even globally," said the Economic Times.

The proposed Sasol-Tata project aims to establish CTL facility with a production capacity of 3.6 million tonnes of oil and oil products a year.

Secure 1.5 billion tonnes of coal

It has been suggested that Sasol believes the project would only be feasible if it can secure the up to 1.5 billion tonnes of coal required to feed the plant over its 25-year life.

The popularity of CTL projects is growing as crude oil prices hold well above the $100 a barrel mark.

Oil generated from the CTL process could cost closer to $50 to $55 a barrel, making it cheaper than imported oil.

That means only five CTL plants, which capable of producing 500MW to 1000MW of export electricity, would be needed to replace 20 percent of India's fuel imports by 2020.

Shares in Sasol were trading 1.96 percent or 8.65 rand firmer at 448.90 rand on the JSE just before the market closed.