Hydrogen, Steel and Green Economy

Global Industries, pushed by ESG metrics, are trying to decarbonize many of its production processes. Steel production accounts for around 7% of CO2 emissions globally, and recently the possibility of green steel has been debated.

Traditional production of steel starts from Iron Ore (Fe2O3) which is transformed to Iron (Fe) by a chemical reaction with carbon monoxide (CO), which is transformed to carbon dioxide (CO2). Carbon Monoxide (CO) is produced in-situ by burning Carbon Coke, which combustion provides also thermal energy needed for production.

The alternative proposed green-process involves Hydrogen (H2) which reacts with Iron Ore (Fe2O3) to produce Iron (Fe) and Water. Additional electrical energy is needed to provide required thermal energy. 

The aim of this article is to explain why Green Steel Investments will eventually lead to a dead end and it can survive only relying on government funds, by applying some basic math and thermodynamics concepts.

Traditional Carbon Coke Process

Chemical Reaction: Fe2O3+3 C +3/2 O2 -> 2 Fe + 3 CO2

Mass Balance: 1.43 ton of Iron Ore + 0.3 ton Coke → 1 ton Iron  + 1.2 ton CO2

For producing 1 ton of Iron, 1.43 ton of Iron Ore and 0.3 ton of Carbon Coke are required. Taking some average prices for the year 2023 from the Shanghai Metal Exchange Market (SHMET), Carbon Coke costs on average 222$/ton and Iron Ore 120$/ton, which translates into the following:

171$ of Iron Ore + 67$ of Coke → 238$/ton of Iron, just considering raw materials prices.

Green Steel

Chemical Reaction: Fe2O3+ 3 H2 -> 2 Fe + 3 H2O

Mass Balance: 1.43 ton of Iron Ore + 54 kg Hydrogen → 1 ton Iron  + 0.484 ton Water

Green Hydrogen costs are currently highly debated and they heavily depend on electricity prices, some estimates say that it will cost around 5-12$/kg. Using a very optimist price of 5$/kg we obtain that:

171$ of Iron Ore + 270$ of Hydrogen → 441 $/ton of Iron, which is 1.85 times higher than the traditional Carbon Coke process. 

This is an optimistic guesstimation, considering that additional thermal energy is required. If we take the mean value of the current green hydrogen price estimates (8.5 $/kg), Green Steel costs x2.64 of traditional Steel. Investment costs are not taken into consideration in this analysis.

Green Hydrogen is solely produced using electricity in a process called electrolysis. To make Green Steel costs comparable with traditional processes we would need prices of electricity 75% cheaper. Even absurd technology progresses to reach a 95% efficiency, considering current electrolysis efficiencies range of 75-80%; will not be enough as it would be less than a 20% price reduction. 

Conclusions

Steel is a commodity and its market is very price sensitive. Manufacturers need to deal with intense global competition and cannot afford to lose margin. Global steel production is around 2 billion tons of steel per year (2.4 billion tons of CO2, just from mass balance) and China accounts for more than 50% of it. There is virtually no market for green steel. It can survive only with government funds, but it will eventually lead to a dead end. Green Hydrogen Costs are at least double than traditional Steel and they are also heavily dependent on electricity prices fluctuations. 

Scroll to Top