Stage set for German steel industry to become major green hydrogen offtaker

Europe's steel industry is set to be a significant consumer of renewable hydrogen and German steelmakers in particular have some of the most advanced plans in the region to tap the new green energy source.

Potential future demand from the German steel sectorcould amount to 850,000 metric tons per year by 2030, according to German steel association WV Stahl, with producers planning to connect to a national hydrogen pipeline network now under construction, as well as producing their own green hydrogen from electrolyzers onsite, saving 28 t of CO2 per metric ton of hydrogen.

The German government expects total hydrogen demand of 95-130 TWh (2.85 million-3.90 million t/y) by 2030, with 40-75 TWh from new demand.

Carbon-accounted hot-rolled coil steel commanded a $120/t premium to the Platts conventional HRC assessment of $615/t ex-Ruhr on Aug. 7.

Platts, part of S&P Global Commodity Insights, assessed the cost of green hydrogen production via alkaline electrolysis in Germany, backed by renewable power purchase agreements, at an average of Eur7.98/kg ($8.71/kg) in July.

"The steel industry offers one of the most encouraging new use cases for low-carbon hydrogen due to the amount of CO2 that can be abated per kilogram of hydrogen," Commodity Insights senior hydrogen analyst Matthew Hodgkinson said. "However, switching to low-carbon steel production is expensive, with ETS prices of at least Eur150-200/t required to make it comparable to current production methods."

Platts assessed nearest December EU ETS prices at Eur71.04/t Aug. 7.

Complete decarbonization of EU crude steel production would require around 6 million to 8 million t/y of low-carbon hydrogen, comparable with current total hydrogen demand, Hodgkinson said.

German steel producers, backed by national and EU government policies, aim for climate neutrality by 2045, targeting a 30-50% reduction in greenhouse gas emissions by 2030.

Greening steel

Steel production accounts for around 5% of European CO2 emissions, and 8% globally. Germany is Europe's largest steel producer and seventh biggest in the world, and the sector accounts for around 30% of the country's industrial emissions.

Steel is produced through two main production routes that both emit CO2 -- the blast furnace/basic oxygen furnace (BF/BOF), and the direct reduction iron/electric arc furnace (DRI/EAF) routes.

The predominant BF/BOF route removes oxygen from iron ore using a carbon reducing agent, such as coking coal, leading to around 1.6-2 t of CO2 emissions per metric ton of crude steel produced. The basic oxygen furnace then converts molten iron from the BF into steel.

Meanwhile, DRI plants can use natural gas, hydrogen or a mixture to remove oxygen from iron ore. Using only renewable hydrogen produces zero greenhouse gases. The EAF melts scrap steel or DRI to produce steel using electric arcs.

Around 60% of European steel production is via BF and around 40% via EAF, according to industry association Eurofer. Germany produced about 35.4 million metric tons of steel in 2023, down 4% year on year, of which 9.8 MMt was produced via EAF and 25.63 MMt via BF.

Steelmakers plan to replace BFs with hydrogen-based DRI, with most DRI plants in Germany to be paired with an EAF (see map).

Salzgitter, Stahl-Holding-Saar and Thyssenkrupp have all issued tenders to source large volumes of low-carbon hydrogen for their steel production from later in the decade.

These companies, along with ArcelorMittal, received state funding commitments in 2023 and 2024 under the EU's Important Projects of Common European Interest program on hydrogen and low-carbon technologies.

Powering up

The switch will see a huge leap in renewable power demand.

The German steel industry's current electricity demand from the grid is 12 TWh, according to WV Stahl. This could double by 2030 to 24 TWh, with crude steel production estimated around 42 MMt/y. Further green electricity will be required to power electrolysis, of around 28-29 TWh.

While being a large increase, those figures are a relatively small fraction of German power demand of around 500 TWh in 2023, forecast to rise to 649 TWh in 2030, according to Commodity Insights data.

European steelmakers are already marketing low-carbon steel products. Platts launched its daily carbon-accounted steel premium assessment in May 2023, which reflects any differential achieved for spot sales of hot-rolled coil on an ex-works basis, with total accounted carbon emissions of 2.1 t of CO2, or less, for every metric ton of steel produced.