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Global trade of Direct Reduced Iron (DRI) as a Game Changer for a near-zero Global Steel Industry? - A scenario-based assessment of regionalized impacts

Panel: 3. Drivers to change

Authors:
Süheyb Bilici, Wuppertal Institute, Germany
Georg Holtz, Wuppertal Institute for Climate, Environment & Energy, Wuppertal, Germany, Germany
Alexander Jülich, Wuppertal Institute for Climate, Environment & Energy, Wuppertal, Germany
Robin König, German Aerospace Center (DLR), Institute of Networked Energy Systems, Stuttgart, Germany, Germany
Zhenxi Li, Environmental and Energy Systems Studies at Faculty of Engineering, Lund University, Lund, Sweden, Sweden
Hilton Trollip, Energy Systems Research Group. Chemical Engineering Department, University of Cape Town, Cape Town, South Africa
Bryce Mc Call, Energy Systems Research Group. Chemical Engineering Department, University of Cape Town, Cape Town, South Africa
Annika Tönjes, Wuppertal Institute for Climate, Environment & Energy, Wuppertal, Germany
Saritha Sudharmma Vishwanathan, Indian Institute of Management-Ahmedabad, Ahmedabad, Vastrapur, Gujarat, India
Ole Zelt, Wuppertal Institute for Climate, Environment & Energy, Wuppertal, Germany
Stefan Lechtenböhmer, Wuppertal Institute for Climate, Environment & Energy, Wuppertal, Germany
Stefan Kronshage, German Aerospace Center (DLR), Institute of Networked Energy Systems, Stuttgart, Germany
Andreas Meurer, German Aerospace Center (DLR), Institute of Networked Energy Systems, Stuttgart, Germany

Abstract

There are several CO2 emission reduction options for the steel sector, including increased recycling and material efficiency, carbon capture and storage (CCS) and hydrogen direct reduction of iron ore. The latter process has been the subject of many project announcements including first investment decisions by big steel companies and can be expected to play a key role in the transformation of the steel sector [1]. This technology requires considerable amounts of (green) hydrogen to reduce iron ore to a product referred to as Direct Reduced Iron (DRI), with few to no associated CO2 emissions.

The need to produce and use green hydrogen at scale and affordably for this process raises the question of where in the world DRI production with green hydrogen will take place in the future. In contrast to hot metal from the blast furnace, DRI produced in a shaft furnace exists in a solid state and can be transported at reasonable costs as Hot Briquetted Iron (HBI) over long distances. This allows the spatial decoupling of the iron reduction process from the steelmaking process. This characteristic of DRI might therefore add an additional spatial dimension to the global steel transformation. Rather than switching from coal-based blast furnaces to hydrogen-fueled shaft furnaces for DRI production at the same production site, steel companies could decide to invest in shaft furnaces in global “sweet spots” – which are rich in renewable energy and in the best case also have significant iron ore resources – to reduce hydrogen-related costs globally while creating value chains based on local resources. The DRI could subsequently be shipped to steelmaking sites around the world [2]. Eventually, this could result in a global DRI trade and in a near-zero global steel industry that – in regard to regional DRI production levels – differs significantly from one in which no such relocations are considered. Our aim is to analyze whether such a shift in iron production sites could lead to significant cost reductions, which could be an important enabler for a rapid transition to net zero GHG steel production worldwide. This is done by developing and comparing two scenarios, Domestic without trade and DRI trade.

Both scenarios achieve near zero emissions by 2050 and result in a global CO2 budget of 51 Gt between 2020 and 2050. While the Domestic scenario was compiled from regional steel decarbonization roadmaps, the DRI-trade scenario builds on the Domestic scenario, but applies rules on domestic capacity investments according to which H2-DRI is imported by some regions instead of being domestically produced. The rule-based investment strategy and the following strategy to import H2-DRI in the DRI-importing regions in the DRI-trade scenario leads to 415 Mt/a of steel produced from imported DRI in 2050, which equals 21% of global crude steel production. Global DRI trade generates cost savings of more than 45 billion dollars annually in 2050 and 535 billion dollars cumulatively by 2050, because it facilitates more H2-DRI being produced in countries with low-cost renewable electricity generation. The savings represent nearly 3.9% of the annual production costs in 2050 and 1.7% of the cumulative costs between 2020 and 2050.

While our analysis suggests that green DRI trade could lower costs of the steel transformation, globally, it's practical implementation will hinge on manifold issues, ranging from challenges to scale-up renewable electricity sufficiently fast in potential DRI-exporting countries over certification issues to questions of self-sufficiency in DRI-importing regions as well as strategic global partnerships between potential DRI importers and exporters to accelerate a global market for DRI-trade.

References:

[1] Vogl et al., 2021. Green steel tracker.

[2] Trollip et al., How green primary iron production in South Africa could help global decarbonization. Clim. Policy 22, 236–247.

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