Iron and steel sector CCS Graham Winkelman IEA Global Iron and Steel Roadmap 24 May 2018
Disclaimer Forward-looking statements This presentation contains forward looking statements, which may include statements regarding plans, strategies and objectives of management, future performance and future opportunities. These forward looking statements are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results to differ materially from those expressed in the statements contained in this presentation. BHP s Annual Report on Form 20-F filed with the US Securities and Exchange Commission identifies, under the heading Risk Factors, specific factors that may cause actual results to differ from the forward-looking statements in this presentation. BHP does not undertake any obligation to update or review any forward-looking statements. No offer of securities Nothing in this presentation should be construed as either an offer to sell or a solicitation of an offer to buy or sell BHP securities in any jurisdiction, or be treated or relied upon as a recommendation or advice by BHP. IEA Global Iron and Steel Roadmap Graham Winkelman 20 November 2017 2
Strength in diversity Petroleum Iron ore Copper Coal IEA Global Iron and Steel Roadmap Graham Winkelman 20 November 2017 3
Implementation of climate change strategy Integrated approach to managing climate risk: Mitigation Low Emissions Technology Adaptation Stakeholder engagement Portfolio evaluation Our approach to Low Emissions Technology is focused on research, development, demonstration (RD&D) and commercialisation of technologies which have the potential to significantly reduce global greenhouse gas emissions but are not currently available at commercial scale or acceptable cost (including CCS). IEA Global Iron and Steel Roadmap Graham Winkelman 20 November 2017 4
Investment in CCS IEA Global Iron and Steel Roadmap Graham Winkelman 20 November 2017 5
CCS road maps Peking University, University of Edinburgh and partners BHP, University of Edinburgh Business School, Peking University and China s National Centre for Climate Change Strategy and International Cooperation agreed in June 2016 to establish an industry-university-research collaborative center focused on CCS in the iron and steel sector. The centre is focused on addressing policy, economic and technical barriers to the application of CCS to the iron and steel sector. IEA Global Iron and Steel Roadmap Graham Winkelman 20 November 2017 6
Assessing the Economics of Capturing CO 2 from Steel Plant LIANG Xi, LIN Qianguo, LEI Ming 24 May 2018
Literature Review Noteworthy CCS/energy efficiency initiatives in the steel sector: Abu Dhabi CCS Project Emirates Steel Industries (first commercial CCS facility on a steel plant, launched in 2016, capture capacity of 0.8Mtpa) ULCOS (Ultra-Low CO 2 Steelmaking programme) consortium of 48 European companies from 15 European countries cooperating on R&D initiatives to enable strong reduction in CO 2 emissions from steel production Toshiba & Shougang Applying CCS to Caofeidian Steel Plant (2015) HIsarna process developed by Tata Steel innovative steelmaking process, reduces emissions by 20% compared to the blast furnace and produces very high CO 2 concentration flue gas (>90%) making it attractive for CO 2 capture. 9
Steel Production Process Coke Making 0.75-2 GJ/t Sintering 2-3 GJ/t BF 13-14* GJ/t DRI 12 GJ/t Steel rolling & Casting 1.5-4 GJ/t Iron and steel-making production routes EAF 2.1-2.4 GJ/t Energy intensity figures from US DoE (2015) 10
Underlying Technologies & Associated Emissions Basic Oxygen Furnace () accounts for 65%* of global steel production; raw materials include coal, iron ore, and (around 30%) recycled steel. In 2013, China manufactured approx. 90%** of its crude steel through. Electric Arc Furnace (EAF), accounts for 30%* of global steel production; raw material mainly steel scrap (up to 100% recycled steel) Open Hearth Furnace (OHF), accounts for around 1%, method is highly energy-intensive and in decline due to environmental and economic disadvantages EAF 0.4 tco 2 /t of steel 1.8 tco 2 /t of steel Coal-based DRI 2.5 tco 2 /t of steel World Steel Association (2017). Steel Statistical Yearbook 2017. ** He, K., & Wang, L. (2017). A review of energy use and energy-efficient technologies for the iron and steel industry. Renewable and Sustainable Energy Reviews, 70, 1022-1039. 11
Primary CO 2 sources in the steel production processes Processes Sintering/ Pelletizing Coking Iron-making Steel-making Continuous casting cold/hot rolling CO 2 Source Solid fuel, Ignition gas, Calcination Washed coal, Coke oven heating fuel, etc. Coke reduced iron process, Consumption of hot blast stove Molten iron decarbonisation Heat treatment using fuel Hesteel Group Enterprise TangSteel HanSteel XuanSteel ChengSteel WuSteel ShiSteel Location 2015 Crude Steel Production (Milliontonnes ) Hebei 47.75 Steelmaking Process EAF, Shanghai 34.94 EAF, Baosteel Group Zhanjian g 9.38 Shagang Group Jiangsu 34.21 EAF, Ansteel Group Liaoning 32.50 Shougang Group Hebei 28.55 Wuhan Steel Group Hubei 25.78 EAF, Shandong JiSteel Shandon 21.69 Steel Group LaiWuSteel g TangshanJianlo ng Hebei ChengdeJianlo ng Hebei Heilongjiang Heilongji Jianlong Jianlong ang 15.14 Group Jilin Jianlong Jilin Fushun New Liaoning Steel Tangshan Xinbaotai Hebei
Location of Hypothetical CCUS Project Point D is the location for Bao Steel Zhanjiang Project Potential transport and storage options of the CO 2 from the West Coast CCUS Cluster 13
Key Equipment in the Project Equipment Name Scale Number of Units High Furnace 5050 m 3 2 Rotary Furnace 350t 3 Two-strand Continuous Slab Casters 2300mm 1 Two-strand Continuous Slab Casters 1650mm 1 Hot Strip Mill 2250mm 1 Hot Strip Mill 1780mm 1 Think Board Casting Plant 4200mm 1 Cold Strip Mill 2030mm 1 Cold Strip Mill 1550mm 1 Raw Material Loading Terminal 300,000t loading 1 capacity Lime Plant 2 x rotary mills and 1 1 x fixed mill, 0.84 million tonne Coal and flue gas fired Power Plant 350MW subcritical 2 Air Separation Unit 60,000 Nm 3 /h 3 Sea Water Desalination 15,000 tonne / day 2 14
Methodology for Economic Assessment COA (Cost of CO 2 Avoidance, CNY/tCO 2 ): COA I O F S T n n n n n0 n 1 r Q A T n n n0 n 1 r CFP (Incremental Cost of Steel Product, CNY/tCO 2 ): CFP I O F S T n n n n n0 n T n0 1 r Y 1 r n n I n the investment cost at year n, Y n the total amount of crude steel produced at year n, O n F n S n Q n the fixed operating and maintenance cost at year n, the variable costs (incl. fuel and solvent) at year n, the transport and storage cost at year n, the total amount of CO 2 captured from the project at year n, r T the percentage representing the fraction of CO 2 avoided divided by the steel total CO 2 emissions from the steel plant without capture, the discount rate (i.e. the required rate of return) the lifetime of the project. A n the total amount of CO 2 generated from an auxiliary power plant for supplying steam and electricity for capturing and compressing CO 2 at year n,
Economic Assumption and Output Total Capital Investment Life Time 407.2 million 25 years Discount Rate 12% Unit CO 2 Emission Intensity Working Capital 1.65 tonne CO 2 /tonne steel CNY20.0m Equipment Operation Time 90%/a Tax Rate 25% Transportation and Storage Cost 112 CNY/tonne CO 2 Sale Price 200 CNY/tonne Total Lifecycle CO 2 Capture Annual CO 2 Avoidance Total Lifeycle CO 2 Avoidance Working Capital The Cost for a Full chain CCS Project 11.25 million tonnes 0.36 million tonnes 8.8million tonnes CNY20.0m 448 CNY/t CO 2
Lower project risk could ease financing Cost of CO 2 avoidance under different discount rate scenarios 17
Enable the Investment The hypothetical model suggests three possible mechanisms to make an economically viable steel sector CCUS demonstration project at a 0.5 MtCO 2 scale: Provide the project with a carbon allowance price support at CNY448/tCO 2, Market 0.36 million tonne CO 2 production as zero-carbon steel and add a premium of CNY740/tonne steel to high value-added market users, or Provide a CNY21/tonne steel tax refund for plants which product more than 8.44 million tonne steel production per year. 18
Potential Financial Sources for Steel CO 2 Capture Equity finance from steel company Financial subsidy from national or provincial governments Border carbon adjustment based on actual abatement cost for steel export Concessional finance from multi-lateral banks and development banks Electricity utilisation hour support for power plant within the steel project Carbon pricing from the emission trading system Climate Bond / Climate Loan Promote a low-carbon steel label Carbon pricing from the emission trading system 19
In fair weather, prepare for foul Capture Readiness Design in Steel Plant: is a future proof design with minimal cost now to enable steel plant to be retrofitted to carbon capture, utilisation and storage when the economic incentive is in place and the cost reduction improves the financial viability. Plant configuration option Plant modification and site requirements Access to storage site The proposed capture process in the retrofitted CO 2 capture ready plant: - Space requirements; - Gas path system; - Steam extraction; - Electricity supplies, - Cooling water system; - Fire system; - 20
Thank you Dr Xi Liang Senior Lecturer in Energy Finance, Co-Director of Centre of Business and Climate Change, University of Edinburgh Secretary General, UK-China CCUS Centre Xi.Liang@ed.ac.uk 21