Vitol considered the role of steel in the energy transition during the Fastmarkets International Iron Ore and Green Steel Summit conference in Barcelona this week.
"Steel is a critical component of the energy transition. We need it to build renewable energy infrastructure; wind turbines, solar panels and dam construction for hydro power, to electric vehicle components including electrical steel for motors, as well as storage (both for renewable energy and carbon capture). However, its production is currently responsible for 8% of global emissions; underpinning an industry focus on ways to reduce emissions, while continuing to meet demand – growing particularly in India and ASEAN," " Vitol said.
Green steel
Hydrogen-produced green steel is the long-term solve, but the current challenges of cost and scale means we have to look for other solutions.
Reducing emissions today
Both current steelmaking processes; direct reduced iron – electric arc furnace (DRI-EAF) and blast furnace-basic oxygen furnace (BF-BOF) can be improved to reduce emissions. In the context of the upcoming introduction of the carbon border adjustment mechanism (CBAM) into Europe many producers are looking at how to optimise their environmental performance.
Energy optimisation in DRI-EAF
The energy required to power the DRI-EAF can be significant (the specific energy consumption depends on a number of factors), and is instrumental in creating so called ‘green steel hubs’ where ironmaking is undertaken in areas which have iron ore reserves and access to natural gas, then the hot-briquetted iron (HBI) or DRI is shipped to EAF steel mills in areas of low-cost renewable energy. This decoupling of production to optimise energy presents logistical complexities. Vitol, with global logistical and energy expertise can help by supplying energy and managing logistics.
Reducing emissions in BF-BOF
With 70%[1] of global crude steel produced using the BF-BOF process it is feasible to make a significant dent in blast furnace emissions through focusing on a range of factors, among others; fuel and burden optimisation and type of coke.
Burden optimisation through increased iron content
Adjusting the mix of materials fed into the BF can improve efficiency. Whilst achieving the required hot metal and slag compositions; increasing the iron content in the raw materials like iron ore and sinter can reduce the amount of coke needed; this can be achieved by using higher-grade iron ore, and/or blending different types of iron ores to optimise the overall content. Vitol works with mill owners to ensure that they have the optimal mix of raw materials; high grade iron ore pellets, lump ore, sinter and scrap to optimise the burden and increase efficiency.
High strength after reaction (CSR) coke
Vitol is one of the leading seaborne suppliers of high CSR coke, a premium material which reduces total coke consumption and in turn reduces the carbon footprint per tonne of steel produced.
Carbon management
While there are a number of approaches to reducing the emissions associated with steelmaking, the incoming CBAM in Europe particularly incentivises carbon reduction for steelmakers located there. With over 20 years’ experience operating across global carbon markets, Vitol can support customers to combine their emissions reductions strategies with carbon management enabling regulatory-aligned compliance.
Supporting customers through transition
Our integrated approach working with miners, mills, and covering inputs, energy, shipping and carbon management, as well as structured finance; and utilising our nearly 60 years of expertise in logistics and trading, means we’re ideally placed to support wholesale and industrial customers worldwide through the transition and beyond.
Hydrogen-based green steel – a deeper dive
Using hydrogen (produced via electrolysis powered by renewable sources) to make DRI or HBI followed by steel production using an EAF can reduce emissions to almost zero compared to the BF-BOF. However, the cost and availability of hydrogen currently pose a challenge.
Costs – investment
Green steel involves committing significant levels of upfront capital expenditure coupled with high ongoing costs of production. Globally there are currently around 70 mt of proposed DRI-EAF projects in the planning phase, though some have been delayed over the sourcing of sufficient green hydrogen at viable cost levels and Final Investment Decisions are generally being pushed back.
The subsidies required will therefore be significant and it remains unclear how best to share the costs between governments and consumers; current carbon pricing (in Europe) is not high enough to cover the costs of this transition, whilst lack of robust carbon prices or taxes in other parts of the world raises the risk of industrial carbon leakage.
In order for hydrogen-based production to become more economic without substantial subsidy, the marginal costs of green hydrogen production will need to more than halve to achieve around 2 USD/kg.
Costs – energy
Scaling up global production of hydrogen electrolysers may help lower costs over time, but the main cost element remains the production of sufficient clean power to support baseload round-the-clock clean energy supply into the electrolysis process. Production of green hydrogen can be optimised by using clusters of off-grid renewable capacities. However, such projects can incur significant costs because ensuring stable power supply is challenging (this can be tackled by building significant surplus capacities of wind or solar relative to power demand and installing batteries or using grid power as a back-up). The cost of transportation and storage of hydrogen can also be high compared to equivalent fossil fuels.
On this basis, short to medium term, it is unlikely to have a significant role in the green steelmaking transition.