For the second week in a row, carbon-free steel is making headlines, with OGE, Thyssenkrupp and Equinor joining together to pile into a sector which is about to undergo its largest transformation since the Bronze age. But rather than the innovation we’ve seen through the projects we’ve talked about in the past, the group is only proposing minor alterations to the same energy-intensive processes, with the gamble that it will be able to capture and store substantial amounts of carbon. We believe this approach will fail.
The trio signed a cooperation agreement on Tuesday, with an initial focus on cutting emissions from one of Thyssenkrupp’s steelmaking facilities in Duisburg, Germany.
This falls in line with Thyssenkrupp’s plan to substituting coking coal with hydrogen for a range of industrial processes. For steelmaking, the company’s current developments aim to inject a high blend of hydrogen into the blast oxygen furnace (BOF), which converts iron ore pellets directly into crude steel. This process currently accounts for around 90% of steelmaking emissions (both CO and CO2), requiring temperatures of around 1,200 degrees Celsius.
Using a BOF for production, steelmaking can often generate more than 2 tons of CO2 for every ton of steel it yields. With global steel demand currently sitting at over 1.7 billion tons per year, the sector is typically responsible for between 7% and 9% of global emissions.
With heavy infrastructure developments set to be central the economic recovery of many nations in the wake of Covid-19, and with urbanization accelerating in many developing countries – especially in Asia – steel demand is set to rise at around 1.4% per year for the for the foreseeable future. As much as 2.8 billion tons could be used each year by 2050. While some of the emissions from growth in demand will be offset by a three-fold increase in steel recycling, new steel production will have to increase to meet this, and without new technologies or practices, emissions would inevitably rise.
But at first glance, Thyssenkrupp’s innovation doesn’t fall far enough from the tree – for several reasons.
The first lies in its persistence with using a BOF. In comparable ‘innovation’ from the Hybrit initiative in Sweden, green hydrogen is proposed to replace natural gas to produce iron ore in a direct reduction process (DRI) which produces sponge iron. This sponge iron can then be melted in an electric arc furnace (EAF) together with scrap steel. The use of DRI with natural gas, instead of a BOF, can more than halve the emissions produced per ton of steel. If powered by renewable electricity, it can remove over 95%.
But DRI currently only accounts for 5% of global steel production and has largely been rejected due to high natural gas prices in the parts of the world where steelmaking is most active. With green hydrogen being produced directly from renewables, this a problem that will be alleviated as the cost of green hydrogen plummets to cost competitive levels from 2024.
Here lies the second problem with Thyssenkrupp’s tactic. Its hydrogen isn’t ‘Green.’ The H2morrow feasibility study run alongside Equinor and OGE, which started in October, tested ways of producing and using ‘Blue’ hydrogen, which uses steam methane reforming with natural gas and an element of carbon capture. Presumably, this carbon capture would also be used to prevent any additional emissions from the BOF process.
This follows the argument that energy-intensive industries, like Steel, cannot perform instant conversion to green hydrogen in the absence of a mass-market or available imports. The three claim that ‘blue hydrogen’ will become cost competitive in the medium term, neglecting the fact that green hydrogen will scale to match this much more rapidly than this group expects.
Thyssenkrupp’s process will, however, be agnostic to how its hydrogen is produced, but the initial idea is for OGE and Equinor to supply gas and then hydrogen to Thyssenkrupp via dedicated pipelines, and then transport CO2 sequestered from the steelmaking to storage facilities underneath the North Sea via pipelines or ship. Three potential ‘blue’ hydrogen production facilities have been identified at Eemshaven in the Netherlands or on the German North Sea coast, with capacities of up to 2.7 GW.
Following this, Thyssenkrupp expects that it will be able to deliver its first carbon neutral steel in 2022.
Carbon capture is in itself a gamble, with limited success so far. Some plants now have technology that has allowed it to capture and sell CO2 to nearby gas facilities, but the figure of 50,000 tons that some companies quote, only accounts for around 5% of their total CO2 emissions. Hybrit explored CCS in its early days, but found that the best-case scenario entails just a 50% capture rate.
Thyssenkrupp, however, is determined to make it work, with plans to demonstrate 50 full-scale plants using carbon capture in the 2030s, while it explores a more incremental approach to going fully ‘green’ in the long term.
Adding CCS infrastructure to any plant will add costs, and will only go towards offsetting any taxes that Thyssenkrupp faces as a result of its CO2 output. In short, the cost of steel will increase as a result.
While the approach that Hybrit is suggesting will be 20% to 30% more expensive in the short term, there is greater scope for cost reduction in the long run. Even before this, many corporations that have made their own climate pledges will be content with paying a premium for a carbon-free product.
As economies of scale comes into play, capital costs will decrease for any process that reaches the mass market. Electricity prices will fall as the cost of renewables continues to plummet, and coal and gas prices will increase with carbon taxes. With carbon pricing in Europe expected to reach $100 per ton by 2030, this tipping point is likely to occur in the back end of this decade, during Hybrit’s demonstration phase, and far before it pushes for commercial plants in 2035. Early models suggest that this breakeven will occur at carbon pricing between €34 and €68 per ton and a cost of electricity of €40 per MWh.
If we’ve learned anything from how Tesla has taken the automotive sector by storm, it is the revolutionary approach, not the evolutionary approach, that will transform industries through the energy transition. Approaches like Hybrit’s, where a lead is taken in a disruptive technology, are much more likely to represent the future of steelmaking – even if Thyssenkrupp takes an early lead in terms of orders.
Another innovation worth noting, is that of Boston Metal, which raised $50 million last week, from investors including BHP, to develop its Molten Oxide Electrolysis process, which uses electricity to directly extract metals from their ore, removing the need for heat from combustion in several stages of the traditional steelmaking process. Currently, the company believes that its process could be cost competitive once electricity prices fall to between $15 and $35 per MWh.
This week, we also saw EDF join forces with Tenaris and Snam to develop a green hydrogen-based approach to steel making at a pilot project in Dalmine, Italy. Using a 20 MW electrolyzer to produce hydrogen, natural gas will be replaced in the DRI process.