These projects face rising natural gas costs

Since 2020, the number of announced and under-construction DRI projects has grown by more than 50%, but they face rising natural gas costs, especially in LNG-importing regions such as the EU, China and India. This is according to a study by the Institute for Energy Economics and Financial Analysis (IEEFA).

Using renewable electricity at existing steel plants makes it possible to launch low-emission direct reduced iron (DRI) production while avoiding dependence on natural gas and fossil fuels.

Experts propose redirecting coke oven gas (COG), a by-product of producing coke from coking coal, to DRI plants. This will reduce costs and emissions while preparing steel companies for a future transition to green hydrogen.

From the 1990s to 2014, COG was used in India to produce DRI in order to avoid the costs of natural gas and coking coal. Since 2023, this approach has been revived by China’s two largest steelmakers.

Replacing captive power generation with renewable sources and electrifying reheating furnaces is likely to reduce costs at blast furnace plants in these regions, making it possible to redirect the coke oven gas previously used for these needs to DRI production.

Widespread adoption of COG DRI technology could lead to a 10–15% reduction in coking coal use (even with high gas prices) in the EU, China and India, highlighting additional demand-side risks for exporters such as Australia.

According to the study’s author and IEEFA analyst Lachlan Wright, steelmakers do not necessarily have to create a new dependence on natural gas in order to move away from blast furnace production. Renewable energy and targeted electrification make it possible to reduce the risks associated with gas price volatility and lay the foundation for near-zero-emission iron production.

Although DRI technology is gaining popularity worldwide, most new projects are designed to run on natural gas. This poses challenges due to high fuel costs, especially in Europe. IEEFA highlights an alternative that is already working in India and China: using coke oven gas, which is rich in hydrogen and methane, instead of burning it to generate electricity or heat. Replacing these needs with green electricity frees up coke oven gas for direct reduction processes.

As an example, the report cites the Thyssenkrupp plant in Duisburg (Germany), where a DRI plant with a capacity of 2.5 million tonnes per year is planned to be launched. IEEFA calculations show that switching to renewable energy and electrifying reheating furnaces will free up enough coke oven gas to run the plant, reducing its direct emissions by 10% without using natural gas.

At the same time, the approach has its limitations. In particular, the Duisburg plant will require about 2.8 GW of solar capacity. Other challenges include uncertainty over import regulation in the EU and the temporary nature of the solution, as coke oven gas remains a coal derivative. Nevertheless, scaling up the technology could reduce coking coal demand in the EU, China and India by 10–15%.

IEEFA emphasizes that this is a transitional strategy that makes it possible to cut costs and emissions now, avoiding long-term use of gas and laying the foundation for future systemic decarbonization.

Global demand for DRI will grow significantly in the coming decades. The main drivers are the decarbonization of the steel industry, the expansion of electric arc furnace (EAF) production and limited volumes of high-quality scrap. According to Midrex estimates, global demand for DRI will reach 260 million tonnes by 2035 and 500 million tonnes by 2050. Europe, the Middle East and North Africa (MENA) will account for more than half of global demand in 2035.