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14 July 2022

Steel industry converges on hydrogen for decarbonization

A flurry of announcements over the past few weeks has seen a new surge towards the production of ‘green steel’ using green hydrogen. While successes continue to be reported from the pilot project side, a string of new projects and corporate pledges are falling in line with the aggressive growth Rethink Energy predicted a year ago.

On Monday, Thyssenkrupp Steel signed an MoU with BP focused on the long-term supply of hydrogen for the production of steel. Germany’s largest steelmaker will now seek both blue and green hydrogen, as well as power from wind and solar generation through the use of power purchase agreements with BP.

Today, Thyssenkrupp accounts for 2.5% of Germany’s total carbon emissions, with most of this coming from its blast furnaces at its Duisburg facility. Here, coal-fired blast furnaces can pump out as much as 1.8 tons of CO2 for every ton of steel produced – a figure which can rise as high as 2.4 tons in other facilities across the world.

As a result, steel accounts for between 8% and 11% of global CO2 emissions. As an essential material for the automotive and construction industry, demand is set to rise by 50% between now and 2050, despite a reduction in per-capita demand.

The company, along with much of the rest of the steel industry, faces an uphill battle to reach its net zero targets. While four of the top five largest global steelmakers have now pledged themselves to reach net zero emissions by 2050, Thyssenkrupp Steel has set a 2045 target, with low carbon power and hydrogen playing a critical role.

Of the 11 million tons of crude steel the company produces each year, it is targeting the production of 400,000 tons of CO2-reduced steel by 2025, before reducing its CO2 emissions by 30% by 2030.

While this initial step accounts for less than 5% of Thyssenkrupp’s steelmaking, it is important to note that – even in 2025 – this will be among the first ‘green’ steel to be produced, as a surge of other companies push to do the same.

Last month, RWE signed a similar deal with ArcelorMittal – the world’s largest steelmaker – to develop offshore wind farms and hydrogen facilities that will supply the renewable energy and green hydrogen required to produce low-emissions steel – also in Germany. This will start with an initial electrolyzer capacity of 70 MW, in Eisenhüttenstadt and Bremen, through a pilot plant coming online in 2026.

A group of steel buyers across Europe have also teamed up with hydrogen developers to invest €2.2 billion in the GravitHy consortium, which plans to build its first direct-reduced-iron (DRI) plant in Fos sur Mer, France, in 2027, producing 2 million tons per year of the hydrogen-reduced iron for use in green steel manufacture on-site, or for export as hot-briquetted iron (HBI). With founders including Plug Power and Engie, construction is set to begin in 2024, with an overall plan to develop 650 MW of electrolysis capacity.

The staggering thing across all of these agreements, is how quickly the steel industry is converging towards this approach of using hydrogen-derived DRI as their means to reduce emissions across steel production. Currently, just 7.2% of global steel is produced using DRI, all of which uses natural gas as a feedstock to reduce iron ore to sponge iron. This sponge iron is then processed in an electric arc furnace, along with scrap steel, to produce crude steel for consumption.

In Rethink Energy’s recent forecast entitled Renewables set to unlock $2.2 trillion Green Steel Monster, it outlines how the emergence of hydrogen-based methods of primary production in the late 2020s will drive an 82% reduction in emissions between 1990 and 2050. Despite the ongoing debate between those for hydrogen or biofuel-plus-CCUS for the decarbonization of steelmaking, the issues plaguing the latter in regard to capture rates and excessive land use, will likely prove insurmountable. Technologies that have continued to fail in actually capturing CO2 output will be displaced by those that avoid them entirely.

There may, however, be space for some innovation from Other groups – including Boston Metals – which is working on technology to produce steel from molten oxides using electricity, although this is at an earlier stage of technological development.

Off the back of early pilot projects in China, Sweden and Germany, which will be completed in 2024, a hydrogen-based approach to the direct reduction of iron (DRI), along with the use of electric arc furnaces (EAFs), provides the potential for a fully ‘fossil-free’ process of steelmaking.

As an appropriate alternative for a reduced-emission process, hydrogen-ready facilities using natural gas will become popular in decarbonization roadmaps, and will be installed throughout the 2020s, before green hydrogen can displace fossil fuels entirely over the subsequent decades – reaching a commercial status in 2029. By 2050, Rethink Energy predicts that a production chain using hydrogen-based DRI and renewable-powered EAFs will account for 34% of global production.

The transition won’t just happen by magic, but transition towards green steel opens huge opportunities for those operating both upstream and downstream of the world’s steelmakers. For the hydrogen-based DRI process to be truly carbon neutral, 61 million tons of ‘green’ hydrogen will have to be produced through over 500 GW of full-time electrolysis. This – along with the 255% increase in electricity demand for EAFs by 2050 – will have to be powered by renewable generation to the tune of 4,500 TWh per year – more than 70% of power generated by wind, solar and hydropower in 2020.

Given the logistical challenges of producing and transporting renewable electricity, and then safety distributing hydrogen, the Energy Transitions Commission recently pointed to a trend of DRI production being relocated to places where renewable energy and green hydrogen production is cheapest.

It will also depend on the ability to store this hydrogen – another area where there have been recent developments. The Hybrit consortium in Sweden – arguably the pioneers of H2-DRI-based steelmaking – has officially opened its new pilot facility in Lulea, northern Sweden, marking the first time a lined rock cavern has been used for subterranean H2 storage.

Storage capacity for the pilot project is only 100 cubic meters, but this could be expanded to 120,000 cubic meters — the equivalent of about 3,000 tons, or enough to supply a full-size sponge iron plant for three to four days, according to Hybrit.