ESG Focus | Jun 22 2023
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ESG Focus: Green Steel Innovation On Fire
The iron and steel industry is about to be transformed by a raft of innovations, some here, some on the way, and others on the distant horizon – we check them out in this deep dive.
-Green steel, carbon pricing and company profits
-Decoupling of iron production and steelmaking
-What about gas?
-Innovators lining up – carbon recycling looks promising
-Downstream markets steeling for transition
By Sarah Mills
FNarena’s last ESG Focus article looked at the advent of direct reduced iron plants which run on hydrogen rather than metallurgical coal, and which require relatively high iron grades; and the innovations and actions on the green iron front to feed these plants.
We also examined claims that steelmaking should shift to areas with large iron ore deposits and bountiful renewable energy. While conceding it to be possible for certain countries, we considered it to be unlikely at this stage (although even companies like H2 Green Steel have been shipping refined steel into Europe).
This article takes a deeper dive an examines the more likely prospect – that pig-iron production will be transferred to countries such as Australia and Brazil that offer both abundant renewable energy and huge iron ore deposits.
We also check out some of the various decarbonisation technologies doing the rounds, and new technologies just out of the laboratory.
Green Steel Industry Snapshot
Steel decarbonisation is under way. The Energy Transition Commission has identified 28 green steel projects globally, most of which are direct reduction (DR) plants.
The better known of these (and those that have reached final investment decisions) include H2 Green Steel Thyssenkrupp in Boden, Sweden; Salgzitter’s Flaschstahl plant in Germany; SSAB and Vattenfall’s HYBRIT project in Sweden; and Arcelor Mittal’s Dofasco plant in Hamilton, Canada.
The pressure to decarbonise steel this decade is intense given 71% of blast furnaces around the world are due for relining by 2030, according to Mitsubishi Heavy Industries, potentially locking those producers into emissions-intensive production for 20 years (the average life of a relined furnace), or forcing them to incur expensive write-offs.
BlueScope Steel ((BSL)), for example, announced last year that it will have to reline its Port Kembla furnace at a cost of $1bn.
This compares with H2 Green Steel Thyssenkrupp in Europe, which recently allocated E2bn to replace four blast furnaces with hydrogen DR plants, suggesting capital expenditure costs for green steel plants are not prohibitive (although operating environments are different so the comparison is indicative only).
For this reason, financing for green steel is at a critical point. Most of the 28 projects identified above do not have financing commitments but given the push to replace blast furnaces, it is likely that green steel will be a key area of finance focus for the next few years.
While an April 2023 Energy Transmission Commission report confirms the steel sector is on track to meet its Paris Accord-aligned emissions pathway by 2030 (currently 60mtpa), the green steel industry will need to triple this to 190mtpa tonnes by the end of the decade. This compares with 2022 global production of 1.878.bn metric tonnes.
That suggests 56 plants (additional to the 28) need to be built by the end of the decade – a big stretch.
How Much Is At Stake For Late Adopters
Steel production contributes to 7% of the world’s carbon dioxide emissions.
The global steel industry is valued at US$200bn and Wood Mackenzie estimates US$1.4trn will be needed to decarbonise the iron and steel sector.
A McKinsey paper observes that studies estimate that roughly 14% of global steel companies’ potential value is at risk if the industry is unable to cut its emissions.
“Consequently, decarbonisation should be a top priority for remaining economically competitive and retaining the industry’s licence to operate,” says McKinsey.
Already, most of the production of green steel has been pre-sold, at a premium of 20% to 30%. The market cannot get enough of SSAB and H2Green Steel products, which suggests the companies will profit from their investments.
Carbon Pricing And Green Steel
Hydrogen Europe in its “Steel from Solar Energy” 2022 report estimated that the breakeven carbon price for green steel would be E140/mt CO2 equivalent.
At the time, the European carbon allowances for December 2022 delivery under the emissions trading scheme settle at E88.83/mt CO2, according to a Platts assessment published by S&P Global.
Europe’s steelmakers have been strongly incentivised to decarbonise.
Under the EU emissions-trading scheme, they are awarded 80% of their allowances for carbon dioxide emissions free of charge in order to remain competitive with China and India.
But these freebies will be phased out and replaced with a carbon tax, meaning those who stay dirty could suffer profit falls in the region of 70%.
Assuming wider adoption of emissions trading schemes and a carbon price, this trend is likely to be replicated globally this decade.
Decoupling Of Iron Production And Steel Mills
The disintermediation of the steel and iron-making processes appears to have begun.
There are three ways to make pig iron from iron ore to feed into steel smelters:
-Hydrogen and gas fuelled direct reduction plants (which produces sponge iron); and
-Molten oxide electrolysis
Blast furnaces are big carbon emitters so are on their way out but hydrogen-fuelled DR plants present their own problems.
Hydrogen-fuelled DR plants require high grades of iron – of at least 68%. This would require a shift to processed magnetite from hematite (hematite grades of roughly 60%), which is currently used in the world’s steel mills.
For perspective, Australia’s Pilbara supplies 50% of the world’s global iron ore demand with its low-grade hematite.
Apart from the logistics and costs involved in shifting from one product to another, magnetite is less abundant and more expensive to process.
So unlike Sweden, which boasts large magnetite resources and underground caves for hydrogen storage, hydrogen-fuelled DR plants are not a profitable or physically viable option for many companies.
Enter Green Iron
Both Fortescue Metals ((FMG)) and Sanjeev Gupta’s GFG alliance have invested in magnetite mines, but this is likely to be a small part of the green iron picture.
Many are pinning their hopes on nascent molten oxide electrolysis (MOE) technology.
MOE electrochemically removes the oxygen from iron ore to produce pig iron, using electrolysis.
Basically, molten oxide electrolysis uses renewable electricity to heat cells into a hot oxide soup, which removes oxygen from the ore.
Electra (previously Boston Metal) uses a process developed by the Massachusetts Institute of Technology and owned by a syndicate including Bill Gates Breakthrough Ventures, and BHP Group ((BHP)) Ventures, and Amazon among other big names.
Boston Metal was founded in 2012 and its green iron refining plant pilot at Boulder Colorado is due for completion this year.
Electra’s commercial-size demonstration project is expected to be completed by 2026, at which point it plans to license its technology and work with steelmakers to install and run reactors. It already has agreements in place to deliver green iron to SSAB in 2026. BlueScope Steel is understood to be in talks with Boston Metal.
Fortescue Metals’ Fortescue Future Industry (FFI) announced in April that it too had cracked the MOE code (at least we are assuming it is MOE given the company was very secretive about the process, which does involve electrolysis).
FFI is building a pilot plant but no timelines have been provided. Fortescue has submitted a proposal to develop a Green Products Precinct at the Boodarie Strategic Industrial Area in Port Hedland.
The company has also been exploring green iron production in Indonesia and Austria.
Even were MOE to fail, which appears unlikely at this stage, the decoupling of pig iron production from steel production is likely to proceed regardless, with energy-hungry hydrogen DR plants set to be transferred to areas with abundant renewable energy.
Even Sweden’s H2 Green Steel, for example, which has is planning another mill, possibly near Sines in Portugal, to produce sponge iron for shipping to central European steelmakers for refining.
South Korea’s POSCO has been allocated land in WA for a green iron project.
Japan is also considering locating a green hydrogen DR plant overseas near sources of cheap renewables and Nippon Steel is said to be considering Brazil (think Vale) and Australia. Vale is currently the worlds leading producer of DR-grade iron ore and aims to triple its production this decade.
The stakes are high for Australia’s miners. Pilbara ore constituted 66% of BHP’s earnings and the bulk of Fortescue Metals' earnings in FY22.
As Sanjeev Gupta pointed out in his steel export pitch: it is easier to ship a product made from hydrogen than it is to ship hydrogen.
And What About Gas?
While DR plants can also run on gas, Nordlander says its research shows using pure hydrogen to reduce iron ore results in mechanically stronger sponge iron, with higher metallisation than can be easily attained with natural gas.
The product is also easier to handle, transport and store, and has superior mechanical and ageing properties.
So while most hydrogen DR plants can also use gas, the product is likely to be considered inferior, and will provide a further incentive to upgrade to hydrogen.
Metallurgical Coal Updates
BHP believes the demise of metallurgical coal in steel production is decades (note the plural) away. But naysayers abound. One decade yes, they say, two maybe but this would be pushing the envelope.
Even the outlook for steel demand, the main market for metallurgical coal, is murky.
The International Energy Agency, for example, expects the more efficient use of steel could shave 20% from demand by 2050.
In this scenario, governments would use less steel in public infrastructure, focus on maintenance over replacement, and update national building codes to be less wasteful. Governments might also regulate carmakers to produce lighter cars.
Regardless, in the 2030s, the scales should be shifting in favour of green steel at metallurgical coal’s expense by many estimates.
And the majors are unlikely to want to be caught holding a hot potato. If we look back to thermal coal, BHP was sensibly touting its thermal coal prospects right up to the point that it offloaded most of its holdings.
South32 ((S32)) may be the canary in the coal mine. The company recently abandoned plans to extend the development of its Dendrobium metallurgical coal mine in NSW and advised that it was pivoting towards “metals critical to a low-carbon future”.
RenewEconomy observes this is already having downstream implications.
BlueScope Steel warned that it may have to spend $150m on new coal berths at Port Kembla, incurring extra logistics costs of $50m to $100m a year if the Dendrobium and surrounding mines did not come online.
Apart from the above technologies touched on above, there are several new technologies hitting the market, including exchange membranes for water electrolysis, electrochemical compression, fluidised-bed technology, carbon recycling, water transmission and fuel cells, ad carbon capture technology.
Smelter technologies are also being revisited.
BHP recently signed an agreement with global engineering services firm Hatch to design an electric smelting furnace pilot in Australia, claiming it is a critical breakthrough in cutting carbon emissions from steel, while using the company’s Pilbara ores.
Such smelters are likely to be used in conjunction with hydrogen-DR plants and green iron technologies.
Fortescue is collaborating with Mitsubishi Corp, Voestalpine and Primetals Technologies to develop HYFOR (Hydrogen based fine or reduction that does not require pelletising, and smelter reduction technologies) that can address the low-grade Pilbara ore problem.
Other less transformative technologies use biomass and plastics and rubber as substitutes for metallurgical coal, but given their nastier emissions profile, they are unlikely to represent serious competition to the hydrogen front-runners that are already quite advanced. Rio Tinto ((RIO)) is involved in a biomass technology called BioIron.
There are a few too many technologies doing the rounds to canvas, so we are narrowing our focus for the rest of this article to carbon capture and carbon recycling.
Overall, the consensus is that the vast majority of traditional carbon capture technologies do not work, and represent a massive exercise in greenwashing and something of a fossil fuel subsidy.
Investors beware because when a carbon price is implemented, non-performing technologies will be cleaned out.
Not only is carbon capture technology premature and unproven, the economic rationale is even more so. For example, it is unclear what part of steel emissions can be captured and at what cost.
SW.com advises carbon capture is likely to be more expensive for steel than for industries such as cement because steel factories have multiple pollution sources.
Nonetheless, the International Energy Agency asserts carbon capture could cover half of all steel production by 2050, freeing hydrogen to be used in other hard to abate sectors such as shipping or fertilisers.
So we check out the main carbon-capture technologies being canvased by steel majors.
BHP has signed with China’s HBIS Group Co to pilot carbon capture and utilisation technology at HABIS’s China steel plants. Technologies to be tested include Vaccuum Pressure Swing Adsorption, VPSA, and slag mineralisation and biological conversion to protein to sequest carbon dioxide.
The pair are also developing and deploying absorptive desulphurisation at a HBIS ZXHT hydrogen metallurgy demonstrating project in the Hebei province, which uses captured carbon dioxide from the direct reduction process in the food or industrial sectors, says BHP on its website.
The trial of Mitsubishi Heavy Industries Engineering’s (MHIENG) process being conducted by BHP, Mitsubishi and Arcelor Mittal is another major project.
Mitsubishi plans to license its carbon capture technology – the KM-CDR Process developed with The Kansai Electric Power Co – which captures carbon dioxide in flue gases via chemical absorption using MHIENG’s propriety KS-1 solvent.
Basically, the technology separates carbon dioxide at the top of blast furnace-flues at a rate of 300kg/d. Then the emissions are tested, separated and the carbon dioxide is captured from the offgases in the hot strip mill reheating furnaces.
UBS believes the technology is a goer, but industry sources point out the technology is fraught and relies on expensive carbon capture storage which can only work for countries with large caves for sequestration and stable geologies.
The potential for leaks, they say, is huge.
Enter The Closed-Loop System.
A very interesting technology to emerge from the UK has been featured in The Economist and many other industry magazines.
This year, Harriet Kildahl and Yolong Ding of the University of Birmingham in Britain developed an incredibly elegant closed-loop carbon recycling system.
In theory, the process can be fitted quickly and cheaply to existing steel plants, cutting emissions by -90%.
If successful, it could prove a game-changer over time, unseating frontrunners hydrogen-DR plants, possibly sidestepping the need for green iron, and quickly bringing forward the demise of metallurgical coal.
The steel industry believes a demonstration plant could be operational within five years.
How The Closed Loop System Works
At the moment, metallurgical coal and iron ore are used in a blast furnace to generate sufficient heat to separate oxygen from the ore.
At 1200 degrees Celsius, the coke reacts with the oxygen to create carbon monoxide, which picks up the oxygen from the ore to form carbon dioxide.
Temperatures then rise to about 1,538 degrees Celsius, releasing molten iron from the bottom of the tower while the carbon dioxide is vented from the top, as well as other gases such as residual nitrogen.
The Kildahl and Ding process cuts coke from the process by pumping carbon monoxide directly in to the blast furnace.
It captures the carbon dioxide produced in the furnace by splitting it into carbon monoxide and oxygen. The oxygen is then used in the second stage of the steelmaking process, and is blown through molten iron to burn off part of the carbon to arrive at the optimum ratio of carbon to iron.
It does this by using a relatively rare calcium titanium oxide mineral crystal, perovskite, which is used in processes such as solar panel and phone-screen (toughener) manufacture, clean energy systems and fuel cells.
When carbon dioxide goes through the chamber, the perovskite absorbs oxygen atoms from the gas, leaving carbon monoxide (which can then be pumped back in, kickstarting the process again).
The perovskite crystal has to be rejuvenated daily. This is achieved by taking nitrogen vented from the last furnace and pumping it through the reaction chamber, creating a low oxygen environment, which encourages the crystal to release the oxygen it absorbed.
Carbon dioxide emissions from the steelmaking process can also be recycled through the chamber.
In a nutshell, two reaction chambers are needed: one to make carbon monoxide, while the other rejuvenates the crystal. Each day, their roles are reversed, allowing 24 hour operations.
Researchers estimate the investment in this technology would be repaid within 22 months.
It is estimated 42,500 tonnes of perovskite will be required for each plant, which probably need to be replaced every five to ten years.
Perovskite crystals is found in the Earth’s mantle and traditionally has been mined in Arkansas, the Urals, Switzerland and Germany.
It appears some forms of perovskite materials can be manufactured (and have been manufactured for use in solar cells) such as methylammonium lead halides and all-inorganic caesium lead halide are reportedly cheap to produce and easy to manufacture. But whether or not this could be used in the carbon recycling process is unclear.
Meanwhile, there appears to be growing competition for perovskite, not just for absorbing sunlight to create electricity, as with solar cells, but also for next generation terahertz data transfer.
The latter application, which has some way to go, allows for the use of light rather than electricity to transfer data, allowing for transfer speeds 1,000 times faster than current technology.
Downstream Markets Heating Up
Perhaps one sign that both green hydrogen and green steel are on the rise is the flurry of activity in downstream markets.
In Australia alone, SSAB has entered an agreement with Schlam, a privately owned Western Australian mining equipment and engineering services provider, to provide green steel products to the company (think dump trucks).
Schlam is just one of more than 500 customers (across 60 countries) in the SSAB Hardox In My Body certification program.
The program services industries such as mining, construction, quarrying, road buiding, recycling, demolition and agriculture.
Schlam’s Hercules dump is the body of choice for most Tier operators, original equipment manufacturers and mining contractors in Australia, including BHP.
Fortescue Metals recently awarded Schlam a $90m contract to supply products and services, including dump bodies and buckets, and onsite mechanical and fabrication services.
Next thing you know, a barney breaks out between Seven Group Holdings ((SVW)) and Fortescue Metals’ ((FMG)) Andrew Forrest, who claimed Seven West Media ((SWM)) was engaging in anticompetitive behaviour by reporting unfavourably on Fortescue to protect its own commercial interests relating to mining equipment.
To what degree the two are related is hard to ascertain. But Fortescue replaced 50% of its fleet and WesTrac, owned by Seven Group, missed out.
And then there was BlueScope’s warning that it may have to import metallurgical coal after South32 announced it would not expand the Dendrobium mine.
Australia is not the only country where downstream deal-making is putting the cats among the pigeons.
Fortescue’s Andrew Forrest has been busy striking deals in Europe and vice versa. While many of these are just memorandums of agreement, these are alliances that are already translating into old-tech business.
Businesses are favouring businesses who make commitments, even if those commitments may not yet be fulfillable.
The Old Hoary Fusion Chestnut
Long term, some are prophesying fusion could play a role.
It is generally agreed that fusion could generate the heat required to remove oxygen from iron ore, but there is a long way to go from producing energy to developing downstream technology for steelmaking.
Yet as time progresses, the fusion prospect is starting to look like a goer.
This month (June), Elon Musk and 2024 US presidential candidate Robert F. Kennedy Junior (nephew of assassinated president John F. Kennedy and son of assassinated presidential runner Robert) recently appeared in an interview together, discussing a range of topics from AI, to vaccinations, and emissions.
While ignoring one of Kennedy’s main objections to nuclear energy (cost) Musk made special mention of his support for fusion (also very costly), in what sounded like an expression of intent, not to mention a dramatic about-face.
Musk’s pronounced late last year that we already had fusion in the sun, and it was powering renewables very nicely thank you.
What could have changed between then and now?
Fusion, like its fission counterpart, is an extremely costly form of energy, but that is unlikely to hinder its adoption.
Nuclear fission, as Kennedy pointed out, is the most expensive way to boil a kettle one can possibly imagine – at least 14x as expensive as coal.
The only thing that can possibly explain fission’s use in the energy mix, given its exorbitant cost, is lobbying. Climate imprimaturs could also be used to support its adoption because it will likely have a lower carbon and geographical footprint than renewables.
Even if the fusion code is cracked this decade, upstream and downstream supply chain would then need to be developed.
Estimated at trillions of dollars, analysts reckon such a supply chain would be sufficiently mature to drive wide-scale adoption (for energy) at 2035 at the earliest. Use in steelmaking would likely be considerably later than that.
NucNet says the Fusion Industry Association is being advised that industry is reluctant to make such an investment at this point in time, without committed orders.
So there's little threat for now.
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