It is all about the DRI. In the third part of our report on the Green Steel Lie, we would like to take a look at the miracle cure in the fight against CO2 emissions that exists alongside hydrogen: Direct Reduced Iron or DRI. Why it could lead us into a green future. What CBAM has to do with DRI and in the end green steel from clean hydrogen is just a pretext for a new market protection measure by the EC.
The Green Steel Lie Part 1 can be found here
The Green Steel Lie Part 2 can be found here
DRI: The second wonder weapon in the battle for green steel
In principle, there are two ways to use hydrogen – whether gray, blue or green – in steel production. One is as a substitute for Pulverized Coal Injection in conventional blast furnaces. However, this only leads to a maximum reduction of 20% in carbon emissions. With other smaller savings (e.g. with the use of green DRI in the blast furnace), a BF-BOF steel mill can probably achieve 30% less CO2 emissions – as so many BF-BOF steel producers have already announced.
- DRI: The second wonder weapon in the battle for green steel
- Ingredient 1: Steel scrap
- Ingredient 2: DRI, the raw material to make the steel green
- No hydrogen, no natural gas, no infrastructure
- CBAM: EC leaves big gap in its Carbon Border Tax
- Utopia as a new name for the EU? But so new…
- Why not use blue hydrogen?
- Rescue in time of need: natural gas
- EU carbon border tax CBAM just a new market protection measure
- What is your opinion on this topic?
BF-BOF technology already exhausted
After this 30% CO2 reduction, however, the blast furnace is finished. So you have to think carefully about whether you want to invest 8 billion euros of taxpayers’ money in technology that actually already belongs on the scrap heap and, according to the latest findings, should be shut down by 2033 at the latest.
Shut down BF directly? European flat steel production would come to an end
The problem is that 96% of European flat steel production comes from BF-BOF processes. Oops. But there was EAF, wasn’t there?
The quality problem with Electric Arc Furnaces
In itself, production with Electric Arc Furnace is much easier to get CO2 neutral. Although the EAF consumes large amounts of energy to melt the mix of steel scrap and DRI into new steel, it can also be fed with electricity from renewable sources such as solar or wind.
Ingredient 1: Steel scrap
Theoretically, there is enough steel scrap available in the EU to convert almost the entire production to EAF. Currently, domestic steel producers consume about 94 million tons of scrap per year. In total, about 131 million tons of steel scrap are produced in the EU, of which as much as 17 million tons are exported.
Steel lobby wants to prevent future scrap exports
It is therefore not surprising that the European steel lobby is already working to have the export of steel scrap banned, or at least made significantly more difficult. And the European Commission is not averse to the idea.
Europeans cannot produce high-quality flat steel products from EAFs
Currently, even about 48% of steel products in the EU are already obtained from EAFs. However, 73% of these are not so high-quality long products. This is also the major problem of simply feeding EAFs with steel scrap: the quality of the steel obtained is not particularly good, which makes it rather unsuitable for flat steel.
Ingredient 2: DRI, the raw material to make the steel green
Adding Direct Reduced Iron (DRI) to steel scrap can increase the quality of steel from EAF production and also significantly reduce carbon emissions. Why currently American steel is also so much better off than European steel in terms of CO2 emissions. And high-quality flat steel products are already being made there from EAF production.
Only 400,000 MT of DRI capacity available in Europe
So DRI, if produced from 100% green hydrogen, is capable of leading European steel production into a cleaner future. It’s just that there is no DRI in the EU. Of course, this is not entirely true; there is a production volume of about 400,000 MT of DRI per year. The amount of DRI produced in the EU has actually decreased significantly in recent years. Most of this is currently produced conventionally by ArcelorMittal in Hamburg.
Europe needs up to 84 million MT of DRI per year
However, to now convert the EU to completely EAF/DRI, with a total production capacity of 250 million tons and a ratio of two parts scrap and one part DRI, it would take a whopping 84 million tons of DRI per year. That is 210 times the amount of DRI currently produced in the European Union.
Global DRI production is only 108 million tons
In 2019, an unfathomable 108 million tons of DRI was produced – worldwide. Most of it in India, Iran and Russia. There are even more than 3 million tons of DRI imported into the EU. Whereby, strictly speaking, we are talking about a specific type of DRI: Hot briquetted iron (DRI/HBI). This is because actual DRI is not particularly easy to transport, and certainly not by sea, as it rusts quickly and thus loses a great deal of its quality. Hot DRI is completely ruled out for international transport, as it has to be processed directly at the production site, much as the DRI in the optimum case also.
2.4 tCO2 per ton of DRI
This currently leaves only the DRI/HBI for import into the EU. Produced conventionally, it is an ecological disaster, generating over 2.4 tCO2 per ton of DRI/HBI using the German electricity mix. The production of DRI is only really worthwhile when there is a lot of cheap natural gas available – such as in the United States or the Arab Gulf States. DRI only becomes green when it is produced from renewable energy and green hydrogen.
No hydrogen, no natural gas, no infrastructure
This means that steel producers in the European Union face another problem. Green hydrogen is neither available at attractive prices nor in sufficient quantities. Natural gas is not infinitely available and has just taken off, increasing its price sevenfold. And there is no infrastructure to produce 84 million tons of DRI in Europe.
Where are all the DRI plants going to go?
Even if you could mushroom DRI plants, there might not be enough space to put a DRI or hot DRI plant with a capacity of 2 million tons next to a steel mill. Or to create the necessary rail infrastructure to move 84 million tons of DRI/HBI from the production sites to the EAF steel mills as close as possible. Almost impossible in densely populated Germany.
Capacity build-up of 2.1 million tons of DRI per year
In addition, steelmakers in the EU would have to start building massive capacity NOW. In fact, 2.1 million tons of DRI per year for the next 30 years. ArcelorMittal is currently being celebrated for its 100,000 MT DRI plant in Hamburg, which will not come online before 2025 and will be subsidized with 55 million euros of taxpayer money. WOW! At this rate, we will certainly manage to become CO2 neutral by 2050…. not.
CBAM: EC leaves big gap in its Carbon Border Tax
How convenient it is that a large part of all semi-finished steel products are to be prevented from import or made significantly more expensive by EU CBAM, but the steel producers have had an exception written into the law. And we don’t want to imagine now what Indian DRI/HBI produces in terms of CO2 that is almost exclusively produced using coal and could then possibly also be imported into the EU – thank CBAM.
DRI explicitly excluded from CBAM draft
It is therefore hardly a surprise that the HS Code under which DRI and its derivatives are listed is listed as an explicit exception in the CBAM draft. Thus, EU steel producers can import dirty produced DRI from non-EU countries into the Union without any restrictions. This is exactly what CBAM is supposed to prevent. A malicious person thinks evil of this.
Utopia as a new name for the EU? But so new…
For all the realism and the great desire that the world finally really wants to achieve its climate targets so that we can still live on this earth after 2050, the European Commission’s plan is simply unrealistic. And on closer inspection, these highly paid, studied and incredibly bright minds in the EU must know full well that their plan is unworkable.
Why not use blue hydrogen?
It would go beyond the scope of this article to take a closer look at blue hydrogen. But a recent peer-reviewed study concludes that blue hydrogen produces 20% more greenhouse gases when burned than natural gas or coal and even 60% more than diesel fuel.
Also, the production of blue hydrogen produces vast amounts of carbon dioxides, the necessary storage of which is not considered clean and is ultimately finite. What will happen later with the stored carbon dioxides is still unknown.
Rescue in time of need: natural gas
For some time now, the natural gas industry in Germany has been investing massively in the expansion of gas pipelines. Be it Nord Stream 2 or simply pipelines within the Federal Republic. Everything under the argumentation to be prepared for the whole green Hydrogen. Conveniently, these pipelines can also be used to transport natural gas – at least until relevant quantities of hydrogen are available. Which, as explained, will still take decades.
New blast furnace technologies also burn natural gas
It also comes in handy that the conversion of domestic steel manufacturers to green hydrogen, subsidized by the European taxpayer, can thankfully be bridged with natural gas firing – until hydrogen is available at all.
Natural gas and steel lobbies united at the German Federal Minister of Economics
It is therefore not surprising that the natural gas and steel lobbies have joined hands with the current German Economics Minister Peter Altmaier – with thyssenkrupp leading the way, according to research by German Monitor magazine.
EU carbon border tax CBAM just a new market protection measure
In conclusion, it only remains for us to state that we are of the opinion – as explained in detail at the beginning – that CBAM will be the new safeguard or anti-dumping measure of the European Union. Because green steel will hardly become competitive before 2030 – not at all at the current rate of expansion.
If you look again at the focus on steel from the McKinsey report mentioned above and the faithful attitude of the EC and the steel lobby to the plan outlined, it is no wonder that there is such a strong fight for a carbon border tax. After all, CBAM is Safeguard 2.0 with green washing.
Fortunately, we are not alone in concluding that the European Commission’s outlined plan towards a green steel future is, under the given circumstances, just a new market protection measure.
The Pedal to the Metal report by Global Energy Monitor from June 2021 also comes to the same conclusion.
As long as EU steelmakers continue to receive their free emission allowances – and the CBAM draft does not foresee an end to allocation – the impact of CBAM for the green transformation remains limited to just another market protection measure.
What is your opinion on this topic?
You know us. We don’t make such hypotheses and then not be open to direct discussion with you. Are we wrong somewhere? Have we miscalculated or overlooked something? Do you have more information on this topic that we should read as well? We look forward to your comments, suggestions, questions and, of course, criticism.
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Disclaimer: Many things here represent our opinion. Others are information from the Internet. We can therefore never claim to be correct or complete. And never base a business decision solely on the news you receive from us.
