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No, metallurgical coal is not a critical material… and carbon capture won’t save it

July 03, 2023
Simon Nicholas

Key Findings

Carbon capture, usage and storage (CCUS) for blast furnace-based steelmaking will not play a major role in decarbonisation of the steel sector.

Direct reduced iron (DRI)-based steelmaking is already leaving CCUS behind in the decarbonisation race.

Steel companies that rely on carbon capture in their long-term decarbonisation plans will increasingly see their plans questioned by investors.

The Australian government has published its new Critical Minerals Strategy and will now undertake a review of the Critical Minerals List.

Some of the suggested additions to the list are somewhat surprising.

The new CEO of Coronado Global Resources – which owns metallurgical coal mines in Australia and the U.S. – believes the metallurgical coal “is a critical material”, due to its role in steelmaking. This is despite an acceleration in the steel industry’s technology transition away from coal that has been noted by the International Energy Agency (IEA).

In fact, not only is metallurgical coal not ‘critical’, its long-term future is one of decline, because carbon capture technology will not save it from being pushed out by alternative technology.

Carbon capture will not play a major role in steel decarbonisation

A key new report from Agora Industry finds that carbon capture, usage and storage (CCUS) for coal-consuming blast furnaces will not play a major role in global steel decarbonisation, and that a phase-out of coal in the steel sector is technically feasible by the early 2040s.

This should not be much of a surprise. IEEFA research has highlighted that CCUS has a long history of significant under-performance and failure in other sectors, and even projects that the fossil fuel industry likes to cite as successes raise major questions about project risk and the feasibility of rolling out such projects globally.

If anything, successful CCUS implementation in the steel sector seems even less likely than in other sectors. An integrated, blast furnace-based steel plant emits carbon dioxide (CO2) at multiple stages of the steelmaking process and at differing concentrations, making the retro-fitting of CCUS to such plants complicated and expensive.

Another key question is where the captured carbon would be stored in the event of a major roll-out of CCUS across the global steel industry. Blast furnaces tend to be located close to centres of steel demand rather than near suitable underground storage sites. This suggests carbon would often need to be transported long distances to storage sites, an additional expense that further erodes the viability of CCUS for steel.

JFE Steel has just joined a study with other Japanese companies and Malaysia’s Petronas to evaluate the potential to capture CO2 at JFE’s steelworks and transport it by ship in liquid form to a potential storage location in Malaysia. Australia is also eyeing the import and storage of carbon from places like Japan and South Korea. The shipping of carbon will clearly add significant costs to CCUS for steel, while the cost of green hydrogen – the leading alternative to coal for steelmaking – is set to drop significantly.

Steel CCUS plans need to be questioned

Despite a clear viability issue facing CCUS, steelmakers and iron ore producers are still attempting to convince stakeholders that it will play a key role in the sector’s decarbonisation.

BHP – one of Australia’s ‘big three’ iron ore producers and the world’s largest shipper of metallurgical coal – is tinkering with carbon capture technology at pilot scale and signed an agreement with Chinese steel major HBIS earlier this year. This followed BHP’s agreement last year to collaborate on the technology with Mitsubishi Heavy Industries and ArcelorMittal, including at the latter’s Ghent steelmaking plant in Belgium.

ArcelorMittal has already inaugurated its “flagship” carbon capture and utilisation (CCU) demonstration plant at the Ghent plant. However, the €200m project will capture just 125,000 tonnes of carbon per year, equivalent to around 2%-3% of the total emissions from the plant if running at full capacity.

Despite this, carbon capture remains a key pillar of ArcelorMittal’s long-term decarbonisation plan via its so-called ‘Smart Carbon’ pathway.

Alternative steel technology leaving CCUS behind… again

According to Agora Industry’s new report, the 2030 project pipeline of direct reduced iron (DRI) plants – which do not use coal – has reached 84 million tonnes (Mt) of capacity globally while commercial-scale CCUS stands at only 1Mt. Many of these industrial-scale DRI projects will use gas initially but will be built hydrogen-ready so they can switch to green hydrogen as it becomes available.

Although 84Mt is only around 5% of global steelmaking capacity, more than 70% of global capacity will reach a reinvestment decision prior to 2030. As such, it can be expected that the pipeline of non-coal-based DRI steelmaking projects will increase much further while CCUS is left behind again, just as it was in the power sector by wind and solar.

Fatih Birol, Executive Director of the IEA, stated in an April 2023 column for the Financial Times that “The project pipeline for producing steel with hydrogen rather than coal is expanding rapidly.”

In June 2023, the two other Australian iron ore majors signed agreements with the world’s largest steelmaker to work on steel decarbonisation. Rio Tinto and Fortescue will both work with China Baowu to investigate DRI- and hydrogen-based steelmaking.

The story of carbon capture technology being left standing at the start line by alternative, non-fossil fuel-based technologies is a familiar one. Any steelmaker or iron ore producer relying on CCUS in long-term decarbonisation pathways needs to have their plans questioned.

An increasingly unlikely role for CCUS will also see coal’s role in steelmaking progressively supplanted by non-fossil alternatives, with green hydrogen leading the race. It won’t happen overnight, but the clock is already ticking for metallurgical coal.

Simon Nicholas

Simon Nicholas is IEEFA’s Lead Analyst for the global steel sector, as well as Asian seaborne thermal and coking coal markets.

Simon’s focus is on the energy transition, the long-term outlooks for coal and steel as well as the need for emerging nations to establish financially sustainable power systems to support their development.

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