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2024

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'Green hydrogen is too expensive to use in our EU steel mills, even though we've secured billions in subsidies'

Author:

Hydrogeninsight


 

Head of ArcelorMittal’s European arm says that decarbonised steel could be made with imported DRI instead

 

Steel giant ArcelorMittal has said it cannot operate its European plants using green hydrogen, despite being granted billions of euros of EU subsidies to install equipment to do so, because the resulting green steel would be unable to compete on international markets.

 

Instead, the Luxembourg-based steelmaker appears to be intending to use fossil gas instead of H2 indefinitely in its proposed “green steel” plants — or it may even delay the construction of subsidised “direct-reduced iron” (DRI) manufacturing units in Europe in favour of importing green hydrogen-derived DRI from abroad.

 

“We already know that hydrogen will be expensive in Europe,” Geert van Poelvoorde, head of ArcelorMittal’s European operations, told Dutch-language business magazine Trends. “We will not be able to use it because we would catapult ourselves completely out of the market.”

 

Producers such as ArcelorMittal are hoping to use hydrogen to decarbonise their steel mills, which together account for 7-8% of all global carbon emissions.

 

Traditionally, iron has been extracted from iron-oxide ore by burning carbon-rich coking coal in a blast furnace, where the fossil fuel produces high-temperature heat while simultaneously removing oxygen from the ore by converting it to CO2. This highly polluting method can be replaced with green hydrogen in a DRI facility, where the H2 reacts with the oxygen to produce steam (H2O) rather than CO2, but DRI plants can also be fuelled with cheaper fossil gas, reducing carbon emissions compared to a coke-fuelled blast furnace, but not eliminating them.

 

Policymakers want producers to eliminate emissions from the sector by using green-hydrogen DRI that is then turned into green steel using renewables-powered electric arc furnaces.

 

But van Poelvoorde’s comments give credence to fears that ArcelorMittal’s planned new green steel installations, for which it has been granted billions in funding from EU governments on the understanding that they will eventually use renewable H2, would not actually use green hydrogen for years, if ever.

 

The company is in line for an €850m grant from the French government for a DRI unit and two electric arc furnaces at its Dunkirk steel mill, a €460m grant from the Spanish government to replace two coal-fired blast furnaces with a DRI unit and an electric arc furnace at the company’s Gijón plant in northern Spain, and a €280m grant from the Belgian government for a DRI unit and two electric arc furnaces at its facility in Ghent.

 

It also has a €55m grant secured for an H2-DRI pilot plant in Hamburg, Germany, taking the company’s total subsidy pot to €1.65bn for green steel production.

 

ArcelorMittal is already a DRI producer (using fossil gas as a reducing agent rather than hydrogen), but it needs hydrogen prices of close to €2/kg in order for H2-derived green steel made in the EU to be competitive, said van Poelvoorde — even with progressive European carbon taxes.

 

For this reason, its planned (and subsidised) new DRI units would use fossil gas as a reducing agent rather than green hydrogen until renewable H2 is “affordable” — if they are built at all.

 

At present, European electrolysis schemes can only produce hydrogen at around €6-7/kg, van Poelvoorde asserted, possibly €5/kg with some optimisation. Even green hydrogen imports would not be feasible, he added, noting that it costs €1.50/kg just to transport it from Africa, where it is cheaper to produce.

 

“We are happy to use hydrogen, but only if our furnaces remain competitive,” van Poelvoorde said. “Surely it would be absurd that I might be able to get hydrogen, but at such a high price that I could no longer produce [steel].”

 

Moreover, he says that inflation has pushed up costs, with the expected €1.1bn cost to install DRI and electric arc furnaces at its Ghent plant ballooning to nearly €2bn, throwing doubt on whether the project will ever be built.

 

“How can I explain to our global headquarters that I want to invest almost €2bn, when I already know the plant cannot cope with the global competition?” he asked.

 

Supply

 

The supply of renewable hydrogen that ArcelorMittal was depending on for its planned H2-DRI equipment also appears to be in jeopardy.

 

“In Hamburg, we have planned a hydrogen pilot plant,” he said. “But a consortium that would provide the hydrogen has fallen apart because there is no solid business plan that makes hydrogen profitable.”

 

It is not clear which consortium van Poelvoorde is referring to, although it is likely a reference to the Hamburg Green Hydrogen Hub, which ArcelorMittal was at one point partnering for its Hamburg DRI plant (although it was not part of the consortium leading the hub).

 

The consortium was dealt a blow last year with the exit of industrial heavyweights Shell and Mitsubishi, leaving a 74.9% equity stake to be sold to asset manager Luxcara.

 

However, this week it emerged that the Hamburg Green Hydrogen Hub was one of the schemes in line for subsidies from the German government as part of the Hy2Infra Important Project of Common European Interest (IPCEI) approved by the EU — although it is not clear whether ArcelorMittal is still a partner in the programme.

 

“There was also a big consortium around hydrogen for our steel plants in Spain, where we get €450m in subsidies,” van Poelvoorde added, referring to the HyDeal España project in which ArcelorMittal was originally a co-developer. “That too has disintegrated, because it would require an investment of €8bn.”

 

The founder of the giant HyDeal España project — Thierry Lepercq — recently told Hydrogen Insight that the consortium behind the original 7.4GW version of HyDeal fell apart during the feasibility assessment, due to a disagreement between ArcelorMittal and fellow consortium member Enagas Renovable over price.

 

According to Lepercq, ArcelorMittal, the offtaker, wanted green hydrogen priced at €1.50/kg, while renewables developer Enagas Renovable wanted it priced at €4.2/kg. Neither company has yet responded to requests for comment on Lepercq’s assertion.

 

Lepercq is now pursuing a slimmed down version of HyDeal, independently of his former consortium partners.

 

Carbon taxes

 

According to van Poelvoorde, the EU’s plan to slash its free carbon-emissions allowances (as part of reforms to its carbon market, and its Carbon Border Adjustment Mechanism, set to be introduced in earnest in 2026) is out of sync with ArcelorMittal’s efforts to make green steel economically, meaning the company will be out of pocket whatever it does.

 

“The European Commission wants to make CO2 much more expensive soon,” he said. “But that will happen faster than we can build new, greener furnaces.”

 

But the ArcelorMittal executive gives no mention of either the European Hydrogen Bank (EHB), which aims to bridge the cost gap between green hydrogen (and its derivatives) and fossil-fuel equivalents, or Germany’s H2Global scheme, which has the same goal for green hydrogen imports and offers subsidised one-year supply contracts to boot.

 

The most likely explanation is that the timing of H2Global and the European Hydrogen Bank will not sync with the company’s green steel efforts either.

 

All of ArcelorMittal’s proposed green steel projects in Europe envisage first operation between 2025 and 2026. The first €800m pilot of the EHB, meanwhile, is unlikely to finance more than a few hundred megawatts of annual green hydrogen production, and developers have five years from the grant award to begin commercial operation — potentially not until 2029.

 

Volumes imported as part of H2Global’s initial €900m auction — the winners from which are expected to be announced in late spring — could be delivered as soon as this year, however it is not yet clear how much will be available.

 

The result is that ArcelorMittal may shift its DRI focus away from Europe to the US, where green hydrogen production is guaranteed a subsidy of up to $3/kg ­— if it can meet the US rules on renewable H2 — and refocus on electric arc furnace installation in Europe instead.

 

This means that they would likely use H2-DRI that has been imported from outside Europe, van Poelvoorde suggested.

 

“My first priority for Ghent now is the electric furnaces,” he told the Belgian newspaper, without making reference to ArcelorMittal’s other DRI projects. “We can solve that [with] a good electricity price. If the electric furnaces are there, the plant is saved. Because then steel production will remain.”

 

“It is not a tragedy if we build the DRI a bit later,” he added. “The material from the DRI can temporarily come from elsewhere.”

 

Hydrogen Insight reached out to ArcelorMittal for comment, but had not received a response at the time of publication.

 

Source:Hydrogeninsight

 

 

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