The imperative to reduce carbon emissions is matched with surging global steel demand. Australia plays a pivotal role to reconcile both forces by driving the journey towards a more sustainable approach to steel production.
Today’s steel industry is at a crossroads. Globally, the industry contributes 7% of total carbon emissions and is under increasing pressure to reduce its impact on the natural environment. To decarbonise the world economy, a transition to more sustainable steelmaking operations is essential.
With developing nations investing more in infrastructure than ever before and the requirements of a green economy ramping up, global demand for steel is set to skyrocket and with it, pressure for this sector to reduce adverse environmental impacts. To get ahead of the wave and prepare for demand, the transition to Green Steel is becoming critical.
So, how do we decarbonise a steel industry that is poised for such significant growth?
We need to turn our focus towards investing in newer and more efficient technologies that require less capital and offer a significant reduction to carbon footprint.
The Australian steel industry’s contribution to global emissions cannot be understated. Although our local production capacity is limited to approximately 5mtpa, a relatively small amount of the total global output, we continue to export over 800mtpa of iron ore into high-emission steel manufacturing operations throughout the world. While a transition to more sustainable operations is clearly essential, the challenge for the Australian resource industry will be to retain its position as a significant provider in the global steel market.
The good news is that we as a nation can be at the forefront of what will be a Green Steel revolution. The key to this lies in the development of new Electric Arc Furnace (EAF) operations that utilise Australian-manufactured Iron Briquettes (Hot Briquetted Iron or HBI) which are produced by new Direct Reduction Furnaces (DRF).
Building these operations can be challenging and having access to the key resources needed to manufacture HBI and steel can be a barrier to successful development. However, Australia is blessed with an abundance of resources required to run these operations. We supply 38% of the annual iron ore demand globally and hold significant reserves of Natural Gas that is used as fuel in the DRPs. To power the new DRP and EAF operations of tomorrow, we will need clean, reliable energy. With solar generation being a key component of the future energy sector, we can capitalise on our abundance of land and sun to generate the power we need.
Direct Reduction Technology: A real solution
Direct Reduction Technology is an alternative way to produce iron but with a smaller carbon footprint and lower capital investment than a steel operation that relies on blast furnaces. Direct Reduction Plants (DRP) comprise of a shaft furnace filled from the top with pellets or lump ore, with natural gas acting as a reducing agent to form the iron. By replacing coal with natural gas, the carbon footprint of producing a tonne of steel reduces by 60% when compared to blast furnaces which utilise coke in the iron making process. These plants produce Hot Briquetted Iron (HBI), a cooled briquette that can be safely transported to both the domestic and international markets. Because HBI is a feed material for Electric Arc Furnaces, the wide adoption of Direct Reduction Furnaces is crucial to keeping global CO2 emissions to 2050 commitment levels and ushering in the green steel revolution. Economically, Australia will benefit directly from the investment in new DRP and EAF operations.
As global demand for steel increases, so too will the need for HBI, and Australia stands to benefit from this significantly. The Minerals Research Institute of Australia reviewed the economic benefits of building a fully integrated DRP plant in the Pilbara region in Western Australia and the numbers are staggering. The report indicated that by 2050 exporting HBI will:
- add $85 billion to our national GDP
- provide $66.5 billion of additional income to local, state and national economies
- create approximately 3,000 FTE jobs, and
- generate $31.7 billion in taxation benefits to the Commonwealth and States.
Furthermore, the report revealed the additional benefits of investing in manufacturing green steel will:
- add $56 billion to our national GDP,
- generate $46 billion in additional income to local, state and national economies,
- create 1400 full time jobs, and
- generate $19 billion in taxation benefits to the Commonwealth and the States.
The economic and environmental benefits of investment in DRP and EAF operations are compelling. However, there are significant challenges to overcome before these benefits can be realised:
Electricity and gas prices: These have risen rapidly over the last decade and indications are that these prices will continue to increase. In recent years, much of the cost increases have been due to the growing investment in distribution networks as a result of a period of significant underinvestment. Additional capacity in these distribution networks will be needed if Australia is going to invest in Green Steel operations, putting further upward pressure on energy prices.
Australian labour costs: The cost of Australian labour is high and will remain so. Therefore, increasing our productivity is a way we can offset our labour costs and keep us competitive in the global market. In 2020, Australia was ranked 16th among OECD countries for labour productivity. It typically takes an Australian worker 5 days to produce what a counterpart in the USA can do in 4. We need to find a way to optimise our efficiency and productivity if we are going to make large scale future investments in Green Steel.
Logistics and capital costs: Blast furnace operations need to be replaced by cleaner alternatives before a substantial market for HBI is realised. Building these operations is an expensive exercise with costs running into the billions. Normally, these operations are run over several decades, enabling operators to make a return on their investment. Over the last 20 years, there has been several new blast furnace operations built across the globe. Developing a business case to shut these down earlier than planned, thus reducing the expected ROI, will be a challenge.
Continuing demand for iron ore: Due to its composition hematite ore cannot currently be used in Direct Reduction Plants. Australia has significant reserves of this ore, and the mining sector will continue to export it on the global market. Technology providers are working hard to enable hematite to be used in DRPs. Until a solution is found, there will be continued demand for iron produced by blast furnaces, which will only prolong the transition period.
The economic and technological challenges associated with a transition to green steel are not insignificant, yet we need to meet them head on if we’re going to decarbonise and safeguard our future environment. Here at Beca, we’re actively working with clients in the sector to investigate the viability of new DRP and EAF operations in the Asia Pacific region. The good news is we are identifying incredible solutions every day to bring these new and more sustainable operations into fruition. And it's encouraging to see that more and more investments are being made in this vital area.
I truly believe we are on the threshold of a green revolution within the global steel industry, and it’s exciting to be helping our clients on their journey towards more sustainable operations.
Learn more about Beca’s extensive Minerals and Metals experience here.