What’s grey, strong, stable, and boring?

What are you looking at?

A computer, a phone?

Where are you sitting? At home, on a train, at the office?

Where did you get to where you are today? Car, bike, bus?

Final question – how much of your time do you spend thinking about the strong, grey, stable, boring metal steel?

If you’re anything like me… close to zero.

Why? Well, why would I? it’s just there.

I don’t mind admitting that I don’t really know much about how or where it’s made, who the big players are, and I don’t really know many people who do either. The likelihood is that you know more than me, to be honest. 

It’s like how pretty much no one could build a toaster, explain how loos flush, or tell me exactly how steel is made (without googling it). Well maybe you could, but I can’t. I’m sure I learned about all these in school or at some point, but they’re hardly at the forefront of my mind.

But steel is everywhere. It’s in everything. It’s the bedrock of our modern advanced cities.

And so it won’t surprise you to learn that the global industry is responsible for roughly 8-9% of all direct emissions from fossil fuels. Each tonne of steel results in about 1.83 tonnes of emitted CO2.

Making steel is an energy-intensive business, and energy hasn’t exactly been clean until now.

With global economies and populations growing, steel demand is expected to continue growing, and driving energy demand growth too.

So naturally, the industry has come under scrutiny for its emissions and steps have started to be taken to develop new technologies and processes to clean up the production of this crucial alloy.

“It’s very clear that if we want to reach [emissions reduction targets] and keep global warming to 2C, steel would also need to become more or less emissions-neutral,” said Nicole Voigt of Boston Consulting Group, for example.

Blue steel

“Blue steel” was the modelling expression that the film Zoolander made famous in 2001.

This is the man himself giving it his best go:

Source: NME

Soon there will be another kind though.

ThyssenKrupp, a leading steel manufacturer, has already begun using hydrogen to help decarbonise its steel-making process.

Dr. Arnd Kofler, a member of ThyssenKrupp’s Steel Europe Executive Board, had this to say: “We consider hydrogen the key to a climate-friendly future.”

The company is targeting a 30% reduction in emissions by 2030.

If that were carried out across the industry, that would mean a reduction in global fossil fuel emissions of 2.5-3%, based on the 8-9% of global emissions figure mentioned earlier.

Why hydrogen?

Because it can perform two functions within the process.

Now I told you I don’t have a great understanding of the process, so if you don’t mind I’m going to borrow from Bloomberg New Energy Finance’s (BNEF) head of Special Projects here.

Steel is currently made from mined iron using a process largely unchanged for more than 150 years. Iron ore is first smelted with carbon-rich coke in huge blast furnaces that emit carbon gases and churn out liquid metal.

Gases can be used instead of coke as reduction agents in an alternative process called direct reduced iron, or DRI. This does away with the blast furnace and is already employed in some locations using natural gas.

“Hydrogen can do everything coal does in the steel-making process, and the technology to make fossil-free steel is already currently operating with natural gas in many parts of the world,” Bhavnagri said.

“Hydrogen technologies offer a viable pathway to slash the emissions from making steel… No big R&D breakthroughs are necessary. If policy was in place, the world could start producing green steel within a decade.”

Another article from BNEF said this.

It’s most useful for steelmakers, who need a way of coaxing carbon atoms out of iron ore. Hydrogen could replace coal in that process — both as an purifying agent and to fire the furnaces that melt metal and stone.

So it’s a 2-fer, a 2-in-1, a two-birds-one-stone kind of situation. That’s probably why ThyssenKrupp announced it would be attending this year’s H2 View Hydrogen Summit in Munich.

The steel industry could adopt hydrogen for between 10% and 50% of output by mid-century given the right carbon pricing, according to BNEF.

And what’s more, Swedish power company Vattenfall has estimated that using CO2-free steel produced using green (ie, renewably generated) hydrogen would force a mere 1% cost increase in a car. So a $20,000 dollar car becomes a $20,200 car. That’s not nothing, but it’s also not a lot. 

So why isn’t this happening already?

Cost.

Sadly, here as with most corners of the hydrogen revolution, cost remains the ultimate barrier. Breakthroughs are being made often, and Deloitte’s latest report on hydrogen projected the cost of renewable hydrogen to fall over 50% by 2029. Fuel cells, which convert that fuel into electricity, are expected to fall in cost to a similar degree.

Companies like ThyssenKrupp couldn’t overhaul their factories and machinery that quickly anyway, so this will take some time, but over the coming years, expect to see hydrogen playing a bigger and bigger role in de-carbonising one of humanity’s biggest polluter’s – the steel industry.

One of the key things holding back hydrogen costs is actually storage, and transportation. Because hydrogen is a low-density gas, it is expensive to store and move around. It either has to be compressed or liquefied, both of which cost both money and energy.

So storage is fast becoming a focus for the industry. Scandinavia, as I’m sure you know, is a hotbed of renewable investment and entrepreneurship, and so it won’t surprise you to learn that it’s a Norwegian company that is the global leader in hydrogen gas storage.

It’s an industry that, in its own right, is projected to grow from $100 million today to $80 billion by 2030.

I’ve been working with James Allen researching this company for the last few weeks, and if you want to find out more about it, here is your chance.

All the best for now,

Kit Winder
Investment Research Analyst, Southbank Investment Research

PS Feel free to send any thoughts or responses to kit@southbankresearch.com.

Category: Energy

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