The steel mills’ CO2 reduction challenge is a game changer.
The good news for the non-Chinese steel mills is that Chinese policymakers, given the massive CO2 emissions of its steel industry, will be implementing steel production controls for years to come. Hence, the Chinese steel mills are no longer a major exporting threat to their offshore competitors.
Outside of China, the financial requirements and increased operating cost to limit CO2 emissions, along with the many older “legacy” plants that are not a candidate for sizable CO2 reduction investments, will be a restraint on steel output for years to come.
Hence, the global steel industry is now in an “era of steel production constraint” that has put steel buyers on the defensive.
Challenges for steelmakers include:
- Capital investments to diminish CO2 emissions are monumental. WSD estimates that the aggregated capital requirement by 2050 – when using International Energy Agency (IEA) forecasts by steel production process and WSD’s estimates of the capital outlay requirement by process – is about $780 billion (see accompanying table).
- Many integrated steel plants need to be reconfigured to depend less on their coke ovens, sinter plants, pelletizing plants and blast furnaces. This process, whether it depends on sharply increased hydrogen usage and/or carbon capture and processing, may lead to a 30% to 80% surge in operating costs based on ArcelorMittal’s position papers.
- New technologies permitting the production of low-cost hydrogen from renewable energy sources steel need to be further developed. And, as well, if hydrolyzers that make use of electrolysis are employed, these units need access to purchased electricity at bargain prices. One of the many investigations by steelmakers to access to low-cost hydrogen is the extraction of hydrogen from ammonia – after the ammonia has been transported to the plant site
- Given that the capital investment to reconfigure a steel plant is massive – which is “the norm” – the project will need access to huge government-guaranteed longer-term “green loans” that carry ultra-low interest rates.
| Steel Industry Capital Spending Requirement by 2050 to Eliminate CO2 Emissions | |||||
| Change | Capital | ||||
| Preliminary | 2019 | 2050 | vs. 2019 | Outlay | |
| Process | Capital Outlay/tonne* | -------------Tonnes------------- | (billion USD) | ||
| Commercial BF-BOF | $350 | 1,310 | 615 | -695 | $237 |
| Innovative BF-BOF with CCUS | $500 | 0 | 62 | 62 | $31 |
| Commercial SR-BOF | $450 | 19 | 0 | -19 | $0 |
| Innovative SR-BOF with CCUS | $600 | 0 | 205 | 205 | $98 |
| Commercial DRI-EAF | $250 | 131 | 185 | 54 | $46 |
| Commercial DRI-EAF with CCUS | $350 | 0 | 41 | 41 | $22 |
| 100% H₂ DRI-EAF | $1,000 | 0 | 164 | 164 | $164 |
| Scrap-based EAF | $250 | 412 | 779 | 367 | $185 |
| TOTAL | $381 | 1,872 | 2,051 | 179 | $783 |
| *Source: Production = IEA. Capital spending needs = WSD Estimates. SR is smelting reduction. CCUS includes carbon capture, some processing of the carbon to produce non-CO2 containing products and the sequestering of some of the CO2 in empty underground caverns. Production of hydrogen requires either a hydrolyzer and/or the existing steam reforming approach that uses natural gas (in which case, the CO2 captured, partly processes with the remainder sequestered. | |||||
- Government’s the world over will be embarking on huge investments to build renewable wind turbine and solar power electricity generating facilities. And, then, to transport and distribute the renewable electricity, along with sufficient storage battery capacity, to users.
- There’s probably a need for sizable nuclear power plant capacity to be built outside of China – that is, if nuclear power can be considered a renewable source since only a minor amount of CO2 is emitted when the nuclear fuel is being prepared. Nuclear power is already considered to be renewable power in China. It is needed because wind turbines and solar farms have only about a 25-30% efficiency rating, when generating power, versus 97%+ for nuclear.
- Government’s the world over just commit to a “level playing field” when it comes to their CO2 emission reduction policies – including the placement of sizable taxes on imported steel products that emitted excessive CO2 when it was produced.
- There will be a massive rise in purchased electricity by the steel industry by 2050, even assuming no rise in global steel output. For example, if a two million tonne per year steel plant: a) makes use of electrolyzers to create the hydrogen via electrolysis; b) employs a directly-reduced iron plant using hydrogen to produce carbon-free high-FE pellets; and c) employs electric arc steelmaking furnaces, this plant might require 60% of the electricity output of a new 1,000 megawatt nuclear plant – that might cost $5 billion to build. And, to make the challenge even greater, the nuclear power needs to be provided at a subsidized price of perhaps only two U.S. centers per kWh.
- Many governments are apparently using the European Union’s Emission Trading Scheme, launched in 2003, as a model of what to do. The EU’s greenhouse gas emissions approach has established a price for of CO2 per tonne by listing on a futures exchange. Also, “carbon credits” – in an ever-diminishing amount – are issued to steel plants that are large CO2 emitters. Recently, the price of a tonne of carbon dioxide on the European Climate Exchange rose to a record high of about $56 per tonne. Hence, if an EU steel company emits two tonnes of CO2 per tonne of steel produced and seeks to boost steel output by one million tonnes, unless it has available carbon credits it would need to purchase $108 million of new carbon credits. (Note: Trading of carbon credits takes place on the European Climate Exchange, NASDAQ OMX Commodities Europe, Powernext, Commodity Exchange Bratislava and the European Energy Exchange.)
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