The talk about green steel is increasing year after year, within the framework of global energy transition and emission reduction initiatives led by Europe, the United States and some major industrial countries.
The Middle East and North Africa region is attracting significant European and global attention within the framework of these emerging initiatives, given that most steel plants in the region are gas-fired, not coal-fired, as is the case in many major producing regions, especially in China and India.
In this context, a recent analytical study – reviewed by the Washington-based Energy Research Unit – expected the Middle East and North Africa to take the lead in the global green steel industry race in the coming decades until 2050.
The study is based on the ability of steel plants in the region to meet the requirements of reducing industrial emissions faster than any other region, given its huge potential in renewable energy.
Hybrid operating systems are key to the future
The MENA steel industry could switch from natural gas to hybrid systems that mix hydrogen with gas to produce direct reduced iron (DRI) in electric arc furnaces without costly structural modifications, according to a study by the Institute for Energy Economics and Financial Analysis (IEFA).
Hybrid operating systems could facilitate the transition to low-emission production in MENA mills, while also positioning them ideally in key global green steel markets, particularly Europe.
Middle Eastern steel mills account for 46% of global production of direct reduced iron (DRI), or sponge iron (DRI), which is used as a raw material for steel production, putting the region in the spotlight of the European steel industry, which is rapidly moving towards green production patterns.
The IEFA study forecasts that global DRI capacity will rise to 175 million tonnes per year by 2030, with the MENA region accounting for a third of the growth.
While global trade in reduced iron is expected to rise to 85 million tons per year by 2050, with the Middle East and North Africa accounting for half of exports.
European carbon tax
MENA manufacturers could be among the first to export green steel to the European Union, which is set to introduce a gradual carbon tax on imports from 2026, restricting the entry of high-emission products through the Carbon Border Adjustment Mechanism (CBAM).
Iron, steel, cement, aluminum, fertilizers and electricity imports are set to be subject to the EU carbon tax, which will gradually increase until 2034, according to the Energy Research Unit.
The MENA steel industry can comply with the EU carbon tax regulations by using low-emission technologies currently, but securing a significant share of the European market in the coming years will only be through a switch to hydrogen, according to Soroush Basrat, an analyst at the Institute for Energy Economics and Financial Analysis.
The analyst advises gas-based ERI plants to prioritize the phasing out of Scope 1 and 2 emissions to meet stringent international green or low-emission steelmaking standards.
Opportunities and challenges for Middle East plants
The Middle East steel plants have a significant opportunity to convert their gas-based ERI fleet to hybrid systems, paving the way for a full hydrogen transition in the future.
Hybrid systems allow for smaller production facilities, which lowers capital costs and makes the transition both economically and environmentally feasible.
However, the MENA region’s heavy reliance on fossil fuels for electricity generation poses a major obstacle to producers meeting increasing international restrictions on emissions-intensive steel, such as the EU’s Carbon Border Adjustment Mechanism.
This could be addressed by expanding the region’s vast renewable energy resources, which would allow producers to reduce their reliance on grid electricity, further reducing the sector’s carbon footprint and boosting the green steel industry.
If Middle Eastern countries succeed in gradually transitioning to clean electricity grids, it is expected that their companies will open up huge opportunities for cooperation with green steel manufacturers in the European Union, especially in light of the move to build more integrated and efficient global supply chains.
The German government, for example, signed an agreement to produce 10,000 tons of green hydrogen in Morocco, to be sent to Berlin, as part of a plan to produce 50,000 tons of green steel.
This green hydrogen is expected to be distributed to buyers through an international public tender in late 2024, indicating the beginnings of cooperation between the countries of the region and the European Union.
