A Low-carbon roadmap for Belgium Study realised for the FPS Health, Food Chain Safety and Environment

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1 A Low-carbon roadmap for Belgium Study realised for the FPS Health, Food Chain Safety and Environment Industry sector steel document This document is based on content development by the consultant team as well as an expert workshop that was held on the

2 Content Industry sector steel Summary p. 2 Context and historical trends p. 4 Details of the ambition levels and costs per lever p. 16 Resulting trajectories p. 36 Backup p. 42 2

3 Executive summary for the steel sector Construction of different future production trajectories Estimate of potential and cost for the GHG reduction opportunities The closing of the hot sections in the integrated steel production facilities in Wallonia has illustrated the vulnerably of the Belgian steel industry. Arcelor Mittal Gent is currently the only operational integrated steel production facility in Belgium with a capacity of 5 Mton/year. In trajectory 1, steel production increases by 20 % from 2010 onwards and the integrated steel production capacity is 100% used in In trajectory 2, production remains at the 2010 production level, although this invokes a shift towards more electro steel production. In trajectory 3, steel production decreases by 50 % in Arcelor Mittal Gent represents most of the production today. It is an energy efficient production plant leaving no easy wins, however the GHG reduction potential (assuming constant production) reaches ~75-94% (in ambition levels 3 & 4) leveraging new processes. In the product mix Use of higher processability steel enables a 5% emission reduction In the product mix, % of the production is switched to EAF leading to a 9% to 53% reduction, switch to EAF is not evident as increasing world steel demand urges for integrated steel production In the first case (ambition level 3) Energy efficiency can be improved and reduce emissions by 4% (CHP potential is very limited) Use of top gas recycling and implementation of Hisarna process enable an additional 11% reduction Use of gas injections enables limited additional reduction Substitution of coke by biomass enables an additional 13% reduction Use of CCS then enables an additional 34% reduction In the second case (ambition level 4), Energy efficiency can be improved and reduce emissions by 4% (CHP potential is very limited) Use of CCS then enables an additional 33% reduction NOTES Reduction potentials are for are ambition levels 3 and 4, expressed as a % of the 2010 GHG emission level except where explicitly mentioned otherwise. The reduction in each step represents the additional reduction percentage after all the previous levers have been applied. This is why : (1) The reductions of the actions add up to the total reduction of the sector (levers are applied in the sequential order represented here) (2) Level 4 ambition can therefore be smaller in cases where more potential has been achieved with the previous levers There is a double counting between the biomass potentials mentioned here and in the supply section, it is removed in the OPE²RA model 3

4 Content Industry sector steel Summary p. 2 Context and historical trends p. 4 Details of the ambition levels and costs per lever p. 16 Resulting trajectories p. 36 Backup p. 42 4

5 A detailed analysis is performed for each industrial sector, the methodology is detailed in the general industry document (and not repeated in each sector document) Understanding the industry Modelling demand trajectories Modelling trajectories with intensity levels + CCS Analyses Definition of the value chain Analyses of growth and competitivity Potential of CO 2 reduction incl. costs Results Modelling the emissions tree Demand trajectories Trajectories with different intensity levels + CCS SOURCE: Climact 5

6 Index in base 1980 At global level, steel production is correlated to GDP World steel production and world GDP evolution (units production, GDP indexed on 1980 steel production level) GDP Steel Historical correlation between steel production and GDP suggest a long term 1-1 relationship Global demand growth is driven by emerging markets SOURCE : World steel association and World Bank 6

7 There is however an overcapacity in the steel sector since the 2008 economic crisis World steel capacity utilisation ratio (%) 100% World steel capacity utilisation ratio 90% 80% 70% 79.4% 82.8% 80.3% 74.0% 75.5% 81.7% 73.6% 83.3% 82.6% 82.8% A capacity utilisation of 80% is too low and the consequence of an overcapacity 60% 50% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun SOURCE : World steel association 7

8 thousand ton European crude steel production does not reflect the world growth European crude steel production (ktons) Other EU BE SOURCE : Eurofer 8

9 Belgian crude steel production did not recover from 2008 recessions Crude steel production (kton and% year on year) Belgium 2011 production: 8028 Kton (65% oxygen steel, 35% electric steel) October 2011 : announcement of closing BF of AML SOURCE : GSV 9

10 Different production technologies for steel exist Technology Raw materials extraction Preparation Iron/ iron cast production Steel production Shaping Products Integrated steel production Coal Cokes production Blast furnace Steel production Carbon Coke Iron oxygène) Steel Iron ore Sintering Hot rolling Final products Iron ore Coke Sinter Coils DRI (1) (not in Belgium) Natural gas Scrap Oxygen Pelletising (not in Belgium) Pellets Oxygen Scrap ( cooling) Hot rolling mill Electro steel Scrap Electric arc furnace Bills Tubes Scrap Steel Gas ( preheating) NOTE: (1) Direct reduction iron SOURCE: GSV, World Steel, Climact 10

11 Different approaches for emissions calculations exist, which complicates energy efficiency comparison Comparison of two main approaches Carbon balance approach Stack approach Definition Pro /cons Measures 1. the carbon purchased (mainly coal, coke, gas, fuel) 2. The carbon retained in steel 3. The carbon in blast furnace gas for electricity production Attractive because simple Methodology does not distinguish explicitly between process and energy related emissions Measures the energy consumption at individual installations (Cokes factory, sintering, cowpers, reheating furnaces...) Complicated due to differences in fuel mix (gas, cokes, gas, blast furnace gas) in different installations Distinction between energy related emissions and process emissions is not unambiguous and internationally not consistent SOURCE: VITO research 11

12 ULCOS is performing prototypes to assess the feasibility of four technologies Top gas recycling & Carbon capture Recycling CO (reducing agent) from blast furnace waste gas Reduces coke and coal requirements Cokes and sinter production unchanged Application in Florange ULCORED + EAF + Carbon Capture natural gas as reducing agent in direct reduction process No coke required Natural gas requirements? HIsarna smelter technology (+ Carbon capture) Combines all the heat processes in one Direct use of ore and coal : 20 % reduction of CO2 80 % with CC Significant coal savings - partial substitution by biomass, natural gas, or H2 Substantial reduction of other emissions, Reduced capex Pilot plant at TATA steel IJmuiden Ulcowin electrolysis 12

13 Short to medium term prospective for the Belgian steel industry is not favourable World World production seems to be fully recovered from 2009 recession (3) Historical growth will slow down in the future (1) Growth mainly in fast developing countries (China, India ) in the next decade (4) EU (1) European production not fully recovered yet from the 2009 recession (3) No longer growth perspectives (overcapacity and diminishing demand Significant impact of the economic crisis: full recovery will take different years -overcapacity of 30 M ton in 2011 Dependence on imported iron ore and coal Belgium (1) Oxygen steel production closed in Charlerloi (Carsid) Closing of oxygen steel production in Liège (Arcelor Mittal) under Renault procedure Walloon industry not favoured by geographical location Shift to EAF not very likely due to European overcapacity and limited availability of scrap (3) (even if some studies (2) mention otherwise) Geographical location of production plants historically determined but circumstanced have changed (3) Scrap mainly imported NOTE: (2) Ibam, Icedd, Econotec (2009). Projet d actualisation de Plan pour la Maîtrise Durable de l Energie (PMDE) en Wallonie à l horizon 2020, SOURCE: (1) Interview independent experts (3)VITO 13

14 Arcelor Mittal Gent, the only hot phase currently working has several pros and cons regarding future evolution Long term prospects for Arcelor Mittal Gent Advantages World demand will continue to rise Semi Maritime localisation construction of ne sea lock Spatial availability Recent investments - recuperation of convertor gas new power plant Important local (European) consumption of flat steel Salvage costs Potential growth to 6,5 Mton in 2030 Disadvantages European dependence on imported iron ore, coal and scrap Growth in consumption mainly outside Europe Given age of certain installations Sources : expert consultation 14

15 Companies in steel industry in Flanders Todays workshop Arcelor Mittal Gent John Kennedylaan GENT Aperam Genk Zuid Zone GENK Other Benchmark companies Arcelor Mittal Genk NV (ex Sikel) KANAALOEVER GENK Bekaert Zwevegem Bekaertstraat ZWEVEGEM Bekaert Lanklaar Bekaertlaan DILSEN Auditconvenant and others DOVRE NIJVERHEIDSTRAAT WEELDE TREBOS - DUFERCO LL SA KLEIN TERBANKSTRAAT TILDONK CHICAGO METALLIC CONTINENTAL BVBA OUD SLUISSTRAAT WIJNEGEM DECLOEDT-DECOV NV KONING ALBERTSTRAAT VELDEGEM SADACI LANGERBRUGGEKAAI GENT BEKAERT NV LEON BEKAERTLAAN AALTER Ferromatrix NV M. Vandewielestraat MARKE Cast Iron NV Lilsedijk BEERSE EUROPICKLING WESTBEKESLUIS EVERGEM Mulders Projects Belgium Leo Bosschartlaan ANTWERPEN BEKAERT BRABANTSTRAAT WAREGEM SOURCE: Energiebalans Vlaanderen 15

16 Content Industry sector steel Summary p. 2 Context and historical trends p. 4 Details of the ambition levels and costs per lever p. 16 Resulting trajectories p. 36 Backup p

17 3 trajectories influencing energy demand will be modelled Possible growth scenarios European population: 1% GNP: 1,6% (1) Trajectory 1 Steel CAGR +0,5% (+20% by 2050) High growth assumption Trajectory 2 CAGR 0% (aligned with 100% renewable study) CAGR -1,7% (-50% by 2050) What if people behaved differently? Trajectory 3 SOURCE: (1) Federal Planning bureau, 17

18 Growth prospects Belgium Production according to trajectories 1, 2 et production capacities (ktons annual production) 2010 to 2050 forecasts (ktons annual production) Delta 10-50,% , Engineering Steel Belgium Thy Marcinelle 10,000 8,000 Trajectory 1 Trajectory 2 +20% +0% NLMK Clabecq Duferco La Louviere Aperam Chatelet 6,000 4,000 Trajectory 3-50% 2000 Aperam Genk 2,

19 Reduction potential Reduction levers are applied in the following order (in the model) Methodology Product mix Energy efficiency Process improvement Fuel substitution End of pipe technologies Augmenting the proportion of product which require less CO2 for production (not applied here) Reduce mechanical and thermal losses Recuperate thermal energy (CHP) Towards fuels which emit less CO2 Top gas recycling and /or Hisarna process Modification of processes Carbon capture and storage Change mix in Electric arc furnace / oxygen steel Minor improvements in current process Smelt reduction potential (1) Electrolysis Coal PCI substitution by biomass CCS implementation Increase proportion of hard steel Reduction of carboniferous materials Choice of main process has consequences on functionality of other levers Some combinations are exclusive whilst others can be added in sequential order SOURCE: (1) (redundant with Ulcored while we represent Hisarna in this analysis 19

20 Reduction potential Top gas/hisarna, Electric steel and Electrolysis are technical options which condition the applicability of the other levers Lever applicability along the main technical options Type of lever Improvement Lever Oxygen steel Classic Top gas/hisarna Electric steel Electrolysis Product mix Increase in higher processability steel (TBC) (TBC) Energy efficiency Process improvement Reduce mechanical and thermal losses (less potential ) (less potential ) CHP potential / / / / Reduction of carboniferous materials (non-fuel related) / (Sidmar close to limits) Smelt reduction / (reduction included in option) (redundant with Ulcored /Hisarna) / / / (reduction TBC) Alternative fuels Coal substitution by gas injection (TBC) / / Coal substitution by biomass (TBC) / / End of pipe Carbon capture & storage (less likely) ( less potential) ( less potential) 20

21 Product mix Change in mix Electric arc furnace / oxygen steel (1/3) Evolution of the Electric steel production in the total crude steel production (%) Belgium Luxembourg EU27 ex USSR USA China World 0% 0% 0% 9% 13% 22% 21% 14% 9% 10% 25% 31% 35% 26% 41% 41% 42% 37% 28% 33% 31% 29% 51% 58% 61% 100% 100% 100% The more countries develop, the more they produce metal scrap Fast growing countries favor the oxygen steel production Belgium has caught up with EU levels of Electric steel production Historically, the proportion of electric steel is increasing in several geographic areas but not globally SOURCE: IISI, Worldsteel, Eurostat, Groupement de la Sidérurgie 21

22 Product mix Change in mix Electric arc furnace / oxygen steel (2/3) Scrap metal availability increase Production and therefore reserves are increasing worldwide (5) Steel can remain more than 50 years in the lifecycle which creates a lag between production increase and available scrap metal increase (1,8) The steel stock should, by some estimates, become self sufficient in one century (1) EAF increase implications The cost /ton of EAF steel is higher (1,3,4) because of the energy consumption (6) EAF enables to produce the steel for all applications (7). However, BOF production produces higher quality steel for some applications ( e.g. automotive sector) (3) Scrap metals collection must be intensified : Requires a smart handling of scrap steel and an access to worldwide metal scrap reserves Access to quality scrap remains a requirement The reduction of BOF has a negative impact on other industries (e.g. cement uses blast furnaces slag to produce composed/metallurgic cements which emit less CO 2 (2) ) The increase in scrap materials enables an increase of EAF production, with major implications NOTES: (8) Length is function of the sector. 50years is typically applicable in the buildings sector, automotive and consumer goods sector typically have shorter life times SOURCES: (1) Wallonia Steel consultation (2) Wallonia cement consultation, (3) GSV, (4) Ulcos, (5) McKinsey, (6) Duferco, (7) Worldsteel 22

23 Product mix Change in mix Electric arc furnace / oxygen steel (3/3) Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Mix based on closing hot lines in Wallonia (1) Oxy steel production in Arcelor Mittal Gent EAF production in all other sites Moderate effort easily reached according to most experts Idem Level 1 Significant effort requiring cultural change and/or important financial investments Idem Level 1 Maximum effort to reach results close to technical and physical constraints 100 % EAF production by 2030 SOURCE: (1) Total production is kept constant but we assume this production is shifted to Electric Arc furnaces 23

24 Product mix Increase in hard steel Background information Some types of steel (called «High processability steels») can be substituted to normal steel but requiring 30% less steel to meet the same standards (e.g. to enable the end product to be as solid) Producing higher processability steel does not require more CO 2 e emissions per ton of steel produced (1) Producing higher processability steel does not affect the industry profitability because even if less is required, it is also sold at a higher price At world level, estimates mention the use of high processability steel to be at around 20% with a potential of 50%. At Belgian level, we can assume the installations which would invest in the technology would continue to produce at full capacity. However, this exercise is performed as if the whole world was moving in the same direction SOURCE: (1) Arcelor, Climact, interview expert in the context of Wallonia Low Carbon

25 Product mix Increase in hard steel Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Moderate effort easily reached according to most experts Significant effort requiring cultural change and/or important financial investments Maximum effort to reach results close to technical and physical constraints 20% hard steel (0% additional and requires 30% less steel) 30% hard steel (requires 30% less steel) 40% hard steel (requires 30% less steel) 50% hard steel (requires 30% less steel) SOURCE: (1) Total production is kept constant but we assume this production is shifted to Electric Arc furnaces 25

26 Energy efficiency (1/2) Reduce mechanical and thermal losses (1) Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Moderate effort easily reached according to most experts Significant effort requiring cultural change and/or important financial investments Maximum effort to reach results close to technical and physical constraints No improvement in energy efficiency 5 % improvement (if not 100% EAF) Idem level 2 10 % improvement NOTE: (1) Includes the behavioral, the energy audits 26

27 Energy efficiency (2/2) CHP potential Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Moderate effort easily reached according to most experts Significant effort requiring cultural change and/or important financial investments Maximum effort to reach results close to technical and physical constraints No additional potential No additional potential No additional potential No additional potential No potential after energy efficiency measures have been implemented NOTE: (1) Includes the behavioral, the energy audits 27

28 Process improvements Reduction of carboniferous materials Evolution of carboniferous materials to produce liquid iron cast (Kg CO 2 e/t liquid iron cast) The amounts of carboniferous materials per ton of steel have been significantly reduced during the last decades With the technical improvements, the blast furnaces in the EU15 use today an average of 0,49 kg of carboniferous materials per kg of liquid iron cast produced It is considered this lever has no additional potential SOURCE: ULCOS VDEh Germany, Steel consultation Wallonia Low Carbon

29 Process improvements Top gas recirculation and/or Hisarna Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) 0% No new technology Moderate effort easily reached according to most experts Retrofit blast furnace to top gas recirculation Savings 25 % due to top gas recirculation of BFG (*) Significant effort requiring cultural change and/or important financial investments Full implementation of Hisarna Savings 35 % due to implementation of Hisarna production (**) Maximum effort to reach results close to technical and physical constraints Idem level 3 * Prelimnary estimate: to be confirmed ** Addditional savings in emissions from coke and sinterplant: quantification required *** Here we have to count for the additional energy requirements 29

30 Process improvements Electrolysis Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Moderate effort easily reached according to most experts Significant effort requiring cultural change and/or important financial investments Maximum effort to reach results close to technical and physical constraints 0% 0% 0% 0% This technology is considered a far away breakthrough (current pilots work at ~5kg capacity per day (1) )and we therefore still do not include it in level 4 ambition SOURCE: Steel consultation Wallonia Low Carbon

31 Fuel substitution Coke substitution by Gas injection Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Moderate effort easily reached according to most experts Significant effort requiring cultural change and/or important financial investments Maximum effort to reach results close to technical and physical constraints 0% coke replaced by gas 2% coke replaced by gas 3% coke replaced by gas 5% coke replaced by gas This technology is has limited impact after Hisarna SOURCE: Steel consultation Wallonia Low Carbon

32 Fuel substitution Coal substitution by biomass Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Moderate effort easily reached according to most experts Significant effort requiring cultural change and/or important financial investments Maximum effort to reach results close to technical and physical constraints / adding 15 % biomass to coal PCI idem level 2 idem level 2 This technology is has limited impact after Hisarna SOURCE: SERPECCC study 32

33 Reduction potential: CCS (1/4) Industrial costs USD/tCO 2 e Oxygen SOURCE: IEA 33

34 Carbon capture & storage Level 1 Level 2 Level 3 Level 4 Minimum effort (following current regulation) Moderate effort easily reached according to most experts Significant effort requiring cultural change and/or important financial investments Maximum effort to reach results close to technical and physical constraints 0% CCS CCS on emissions from reduction process 85 savings related to coke and coal consumption additional energy requirements for compressing and storage CCS on emissions from reduction process 85 savings related to coke and coal consumption additional energy requirements for compressing and storage Additional CCS on all other sources (85% capture) 34

35 Reduction potential: Reduction impact of each levers for each ambition, horizon 2050 Steel sector Type of lever Product mix Improvement Increase proportion of Electric arc furnace vs oxygen steel Increase in higher processability steel Reduction potential (2050) in % % as of % (20% in 2050) +17% as of % (30% in 2050) +17% as of % (40% in 2050) +100% as of % (50% in 2050) Cost 60/tCO 2 e Neutral Description Ambitions 1,2,3 based on closing hot lines in Wallonia and only oxy steel production in Arcelor Mittal Gent 30% less steel is required to meet same specifications Does not emit more CO 2 to produce Application Oxygen Topgas/ Classic Hisarna Electric Is this one (TBC ) Electrol ysis Energy efficiency Process improvement Alternative fuels Reduce mechanical and thermal losses 0% 5% (0% if switch to EAF) 5% (à% if switch to EAF) CHP potential 0% 0% 0% 0% / Reduction of carboniferous materials (non-fuel related) Top gas recirculation and/or Hisarna 0% / / / / / 25 % efficiency 35% efficiency 35% efficiency 10% 40/tCO 2 e Includes behavioral & energy audits 600/tCO 2e Smelt reduction / / / / / Electrolysis 0% 0% 0% 0% / No potential after energy efficiency measures have been implemented Improvement potential already reached in oxygen classic Level 2 is only with top gas Level 3 is also including Hisarna prod. Not compatible with Hisarna improvements (tested in Ulcored pilots) Breakthrough at very experimental stages Coal substitution by gas injection 0% 2% 3% 5% Fuel costs Through injection of gas Coal substitution by biomass 0% 15% 15% 15% Fuel costs Of Coal PCI End of pipe Carbon capture & storage 0% 85% of oxygen 85% of oxygen 85% of all 50/tCO2e Includes additional energy consumption (0,3MWh/tCO 2 e) (less ) / / / (incl / ude / d) Is this one / / / / (less likel y) (TBC ) (TBC ) / / (less pot enti al) Not mature enough 35

36 Content Industry sector steel Summary p. 2 Context and historical trends p. 4 Details of the ambition levels and costs per lever p. 16 Resulting trajectories p. 36 Backup p

37 Reduction potential Emissions according to different trajectories Trajectory 1 (high growth) GHG emissions for different ambition levels (MtonCO 2 e) % -56% -58% -93% SOURCE: OPE²RA model 37

38 Reduction potential Emissions according to different trajectories Trajectory 2 (medium growth) GHG emissions for different ambition levels (MtonCO 2 e) Delta 10-50,% % -63% -65% -93% SOURCE: OPE²RA model 38

39 Reduction potential Emissions according to different trajectories Trajectory 3 (low growth), GHG emissions for different ambition levels (MtonCO 2 e) Delta 10-50,% -54% -82% -83% -96% SOURCE: OPE²RA model 39

40 Cost Marginal cost and abatement potential for different levers under trajectory 2 with ambition level 4 GHG abatement curve for the year 2050 (trajectory 2, ambition 3) /tco 2 e, % emission abatement in 2050 (% of 2010 level) /tco 2 e Top gas /Hisarna Costs will be significantly reduced if the technology is scaled and because it enables to avoid the use of a coke and of a sinter plant Biomass Hard steel Energy efficiency CCS EAF mix NOTE: Hypothesis of cost neutral energy efficiency measures, cost of biomass generic across all sectors SOURCE: OPE²RA model % emission abatement in 2050 (% of 2010 level) 40

41 Cost Marginal cost and abatement potential for different levers under trajectory 2 with ambition level 4 GHG abatement curve for the year 2050 (trajectory 2, ambition 4) /tco 2 e, % emission abatement in 2050 (% of 2010 level) /tco 2 e CCS Hard steel Energy efficiency Scrap price is not taken into account EAF mix % emission abatement in 2050 (% of 2010 level) NOTE: Hypothesis of cost neutral energy efficiency measures, cost of biomass generic across all sectors SOURCE: OPE²RA model 41

42 Content Industry sector steel Summary p. 2 Context and historical trends p. 4 Details of the ambition levels and costs per lever p. 16 Resulting trajectories p. 36 Backup p

43 The life cycle of steel shows the importance of scrap collection Life cycle of steel Despite of excellent recyclability of steel, continuous growth in world demand and long lead time of recycling still urge for an important fraction of pig iron production SOURCE : GSV 43

44 Europe is major importer of Iron ore, Central and South America are major Exporters Important and export of iron ore (million tons actual weight) SOURCE : World steel organisation 44

45 Steel production in 100% renewable study Assumptions = 4 Mton oxi steel production, 4 Mton electro steel Hydrogen as reducing agent Electrolysis for hydrogen production Steel production used in balancing electricity supply and demand Excess reduction capacity: production when excess solar available (8 months/year) Requires over dimensioning of steel production capacities and flexibility in labour organisation. Easier to implement for electro steel Source: Roadmap for an energy system transition towards an 100 % renewable energy sources by the year

46 Indirect emissions of BFG in electricity production should not be ignored too Indirect emissions BFG in electricity production Verified emissions Aperam (ALZ) Verified emissions Arcelor Mittal Gent SOURCE: Verified emissions Energiebalans Vlaanderen Indirect emissions for BFG: BFG in electricity production x (emissions factor for BFG emission factor natural gas ) 46

47 Thank you. Pieter Lodewijks Erik Laes Jan Duerinck Michel Cornet