Production of synthetic natural gas (SNG) from coal is typically water intensive due to the need of increasing H-2/CO ratio from 1 to 3 via water gas shift reaction. Here we report a water-saving dry methanation reaction that allows direct conversion of low H-2 content syngas (H-2/CO = 1) to methane without consumption of water for adjusting H-2/CO to >= 3 and without production of waste water. Conventional Ni/Al2O3 catalyst is active for the dry methanation reaction but deactivates very rapidly due to carbon deposition and metal sintering. A Ni0.1Mg0.9Al2O4 catalyst exhibits much higher activity and better stability during steady state catalytic reaction and cyclic reaction-regeneration operations. Using a suite of characterization tools including BET, XRD, STEM, TEM, H-2-TPR, Raman, TG-DSC, CO2 and NH3 TPD, and temperature-programmed hydrogenation, we reveal that carbon deposition did not occur on the surface of Ni particles in Ni0.1Mg0.9Al2O4 catalyst. Moreover, the population of small Ni nanoparticles (ca. 2 nm) increased after multiple reaction-regeneration operations possibly due to Ni redispersing via reversible diffusing among the framework of spinel. The exposure of active Ni surface and the formation of small-sized Ni nanoparticles together contributed to the stable and improved activity for dry methanation during the reaction-regeneration operations. (C) 2019 Elsevier Inc. All rights reserved.