‘Green steel’ is still decades away in Asia as hydrogen struggles to replace coal-fired furnaces, says mining giant BHP

The youth of the region’s blast furnace steel plants makes it difficult to justify the costs of converting to hydrogen-enabled facilities
Steel contributed 15 per cent of China’s carbon dioxide emissions, the second-highest proportion after the power generation sector

Business of climate change

Eric Ng

Published: 7:30am, 1 Dec 2022

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Environmentally-friendly steel on a commercial scale in Asia is still decades away as the use of hydrogen to replace coal-fired furnaces in production is a long way from being commercially viable, according to Australian mining giant BHP.

The relative youth of the region’s fleet of traditional blast furnace steel plants – averaging 12 years in China and 18 years in India – means it would be difficult to justify the costs of converting them to hydrogen-enabled “direct reduced iron” (DRI) facilities, said chief development officer Johan van Jaarsveld.

“The adoption of hydrogen in steel making – the replacement of blast furnace iron with direct reduced iron – is something possible in the future,” he said. “However, we don’t think that is something that is going to happen in material quantities in this part of the world for another few decades. The reason is just costs.”

For DRI to be economically sustainable in Asia, the price of each tonne of carbon dioxide emitted would need to rise to US$100, and the price of green hydrogen fall to US$1 per kilogram, he said.

Carbon has traded between 56 yuan and 62 yuan (US$7.8-US$8.6) a tonne in China’s national carbon market so far this year. In Europe, where “green steel” production is more advanced, carbon permits fetched €58-€98 (US$56-US$102) a tonne.

Johan van Jaarsveld, chief development officer of Australian mining giant BHP. Photo: HANDOUT

The cost of green hydrogen, made by splitting water into oxygen and hydrogen using renewable energy, could take until 2050 to fall to US$0.7-US$1.60 per kg in most parts of the world, from US$2.5-US$4.5 in 2019, according to BloombergNEF, a clean-energy industry data provider.

DRI, which involves the removal of oxygen from the ore to produce iron without melting it, is much less carbon-intensive than that produced in blast furnaces.

BHP plans to spend US$4 billion to reduce its own greenhouse gas emissions globally by at least 30 per cent by 2030 compared to 2020.

The iron ore and metallurgical coal mining giant has started to introduce electric lorries, and charter vessels powered by natural gas instead of oil to cut its carbon footprint from transport.

It is also helping customers to develop low-carbon steel technology. This will take a few decades to reach commercial scale since the infrastructure needs to be built and production scaled up to slash costs, said van Jaarsveld.

Two-thirds of BHP’s US$60.8 billion of annual sales – mostly iron ore and metallurgical coal – goes to China, the world’s largest greenhouse gas emitter that is aiming for peak emissions by 2030 and carbon neutrality by 2060.

The steel sector contributed 15 per cent of China’s carbon dioxide emissions, the second-highest proportion after the power generation sector’s 40 per cent.

Another way to sharply reduce carbon emissions in China and India’s steel industries is to replace the blast furnaces with so-called electric arc furnaces (EAF) fed by scrap steel. But progress here is likely to be gradual, because of the costs and limited availability of scrap steel.

The carbon footprint of steel produced by electric arc furnaces is around 75 per cent lower than that of blast furnaces, according to metals consultancy CRU Group.

Beijing is aiming for China’s steel industry – the world’s largest – to reach peak carbon emission in 2030. It wants EAFs to account for over 15 per cent of total crude steel production by 2025, up from 10 per cent in 2020.

The conversion effort is too slow, according to a report published last year by Global Energy Monitor, a US think tank, which noted that China accounted for 45 per cent of global blast furnace capacity either planned or under construction.

Some 72 per cent of global steelmaking capacity under construction is in the form of blast furnaces, said the report’s lead author, Caitlin Swalec.

“It is clear that we are not only behind in the shift from [blast furnace] to EAF steelmaking capacity, but that the situation is actually going to get worse without intervention,” she wrote.

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