Iron production for steelmaking should be moved to where renewable energy and green hydrogen are most abundant and cheapest to produce, to help overcome one of the major barriers facing the realisation of green steel production, according to oil giant Shell.

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Green hydrogen is currently the only zero-carbon alternative to the fossil fuels used today to extract iron from iron ore — a process called direct-reduced iron (DRI).

A lack of available and affordable renewable energy and green hydrogen was listed top of Shell’s six key barriers to decarbonisation of the steel industry, in its new report Forging New Paths Together, followed by an absence of regulatory and policy framework and a lack of technical expertise, funding and cross-sector collaboration.

A so-called “geo-split” — where existing steelmaking facilities remain close to end markets and DRI production (see panel below) is relocated to parts of the world with low-cost green H2 production — could help overcome the energy problem, it believes.

This is because a large steel plant in, say, Germany, would require roughly 1GW of renewable energy just to produce enough green hydrogen to replace the coke or natural gas used to extract iron from ore today.

Brazil and Australia are ideal sites for the DRI part of the geo-split model, the oil giant said, having both well-established mining industries and abundant wind and solar resources, while the Middle East is also a prime location due to its strong sunshine, winds and available land, as well as the proximity to European markets.

This could lead to green hydrogen-DRI “megahubs” springing up around the world that produce hot briquetted iron (HBI), a type of premium DRI suitable for transport, for export to the major steel markets.

The adoption of the geo-split model could also help bring costs down, according to sources in the banking and steelmaking sector quoted by the report.

Green steel is expected to command premiums of at least two to three times that of conventional steel until at least 2050, Shell said, with energy accounting for 50-70% of production costs.

In total, each tonne of steel produced via hydrogen-DRI would require 80kg of H2 and 600kWh of electricity, the oil giant estimates.

“I strongly believe in the splitting of iron and steel making, as the cost of energy is the most important driver,” one steel industry financier told the report, with another DRI equipment supplier adding: “One could produce the hot briquetted iron at a DRI megahub in a low-cost green electricity region and export it to Europe. We believe this is the most cost-efficient way of producing steel.”

The European hydrogen industry is already beginning to become alive to the idea, with Lord Adair Turner of consultancy Energy Transitions Commission laying out the potential for a break-up of the steel-value chain at the Financial Times’ Hydrogen Summit over the summer.

For the hydrogen industry, it could also solve the problem of transporting H2 overseas, which is both inefficient and expensive, for use in steel production.

And the oil giant was swift to point out that the steel industry has historically prioritised its proximity to energy sources.

“The availability of affordable energy has always been a key determinant of the geographical location of steel plants,” the report says. “Historically, BF–BOF [the conventional steelmaking process of blast furnace-basic oxygen furnace] plants were built near coal mines or coal supply routes, and gas-powered DRI plants near gas fields. The iron ore, on the other hand, is shipped worldwide.”

Nevertheless, Shell is pessimistic about the likelihood of national governments allowing even a part of their strategic industries to relocate out of their territories, and steelmakers may also prove reluctant to embrace a switch-over to overseas H2-DRI production.

They may prefer to simply use renewables-powered electric-arc furnaces to melt scrap steel, therefore only decarbonising part of their operations, before possibly taking the plunge on green hydrogen-DRI at a later date — or perhaps buy in hot briquetted iron from a third party.

However, there has been some evidence that using hydrogen to make DRI delivers better quality iron, which could factor in to the steel industry's commercial calculations.

Green steelmaker Hybrit, which has been piloting hydrogen-DRI green steel at its plant in Sweden, has been patenting its method, however, its plant is still several years away from industrial-scale production.

Why use hydrogen to decarbonise steel?

Hydrogen is currently the only viable route to fully decarbonising the steel sector, which accounts for 7-11% of global carbon emissions at present.

Today, most steel is made using a carbon-intensive blast furnace-basic oxygen furnace (BF-BOF) method, which uses coal to both heat and extract iron from iron-oxide ore, before other substances are introduced to make steel.

Hydrogen can be used instead of coal to both heat and remove oxygen from the ore in a process known as direct-reduced iron (DRI). DRI plants have been in commercial use for some time, using natural gas as the reducing agent, but hydrogen DRI plants are now being commercialised.

Hydrogen-DRI is currently the only available method of fully decarbonising iron production. When paired with an electric arc furnace (EAF) to help turn that iron into steel, emissions could theoretically be reduced to zero.

However, as most plants today still use BF-BOF, it will require a massive amount of capital investment to realise a switchover to hydrogen-DRI and EAF, resulting in slightly more expensive green steel.