South Africa’s ‘green steel’ dreams stumble as feasibility challenges emerge

22 Jan 2025

The ambitious plan to produce green steel in the Freeport Saldanha Industrial Zone has been shelved, with Sasol and ArcelorMittal citing high costs and shifting priorities. The setback raises questions about the future of green hydrogen in South Africa and its ability to drive sustainable economic growth.

The much-vaunted plan to produce “green steel” in South Africa is off the cards for now and its role as a catalyst and anchor of domestic demand for green hydrogen in the country is at risk.

This is according to both Sasol and ArcelorMittal South Africa who had explored the possibility of producing the steel in the Freeport Saldanha Industrial Development Zone in the Western Cape.

Daily Maverick previously reported that on day one of the Africa Energy Week conference in 2022, representatives of Sasol and ArcelorMittal signed a deal to investigate the feasibility of developing carbon capture technologies to produce sustainable fuels, as well as “green steel” production.

Read more: Sasol and ArcelorMittal sign deal to look into feasibility of carbon capture and ‘green steel’

The now seemingly failed foray into green steel production represents a great loss to both South Africa’s efforts to mitigate its carbon footprint and to catalyse broader sustainable economic growth.

According to ArcelorMittal’s Decarbonisation Roadmap 2023 report, in 2021 it envisaged Saldanha Works “initially producing lower carbon steel and, subsequently, DRI (direct reduction iron), using green hydrogen. These operations, we said then, would be centred on Saldanha’s advanced Midrex plant (the only such plant in Africa), using natural gas.”

Roadmap

The second leg of their roadmap, the authors of the report write, entailed the Conarc plant “being restarted as a scrap smelter (electric arc furnace) using renewable energy, for continuous casting and rolling”.

“Subject to regulatory and funding arrangements being made and affordable renewable energy and rail transport being secured, we suggested that Saldanha could produce 600,000 tons of steel per year by as early as 2023. At 104,000 tons per annum, we projected that Saldanha Works could account for South Africa’s largest single private-sector off-taker of green hydrogen, catalysing the development of a green hydrogen industry.”

Read more: Sasol and ArcelorMittal to breathe new life into SA’s West Coast economy with green hydrogen hub

To best understand what green steel is, one needs to understand how steel is currently produced. The International Energy Agency (IEA) explains that about 75% of steel is still largely made in coal-fired blast furnaces, which pump large amounts of carbon dioxide into the atmosphere. Huge amounts of energy are also needed to heat the furnaces to above 1,000°C.

Globally, the steel industry is responsible for roughly 2,6 billion tons of carbon dioxide emissions, which is about 8% of global emissions.

When these coal-fired blast furnaces are replaced with ones that run on carbon emission-free green hydrogen, the steel that is produced is accordingly considered green steel.

Asked for an update on the Memorandum of Understanding (MOU), Alex Anderson, senior manager for group media relations and external communication at Sasol, said: “The partnership was an exploratory MOU, and based on those outcomes both parties chose to not pursue further as it wasn’t feasible.”

Costs and benefits

Anderson explained that it was no longer feasible due to the costs and benefits involved, and the two companies moving in different business directions with different priorities.

“We can’t do all hydrogen projects, all over, all the time, we’ve only got so many resources in the form of people and budgets.”

About 3,500 jobs are set to be culled when ArcelorMittal South Africa stops steel production at the end of January at its operations in Newcastle and Vereeniging.

Read more: How government dithering pushed ArcelorMittal to shut down steel operations

Asked for an update on their green steel plans, Angie Richardson, responding on behalf of ArcelorMittal, said that those plans were not a priority at present.

“Right now, as I am sure you can imagine, the ArcelorMittal team is fully focused on the Longs announcement. The company is also in a closed period.” Amsa will release its annual results on 6 February 2025.

In its presentation, dated 30 April 2024, ArcelorMittal notes that “Large amounts of clean energy are required to effectively decarbonise steel-making processes. Steel remains a crucial enabler to SA’s economy.”

It continues that the “H2 (hydrogen) price and market demand will be among the deciding factors” concerning the feasibility of producing green steel in the Freeport Saldanha Industrial Development Zone”. Freeport Saldanha is South Africa’s first freeport, a special economic zone and customs-controlled area dedicated to the maritime, energy, logistics and engineering industries.

In its Decarbonisation Roadmap 2023 report, ArcelorMittal optimistically suggests that “As a very large industrial concern, ArcelorMittal South Africa has the ability to catalyse the development of

a thriving domestic green hydrogen economy, one that creates significant employment by competing and exporting internationally. We can play an important role in driving such development by providing a large, early market (offtake) for green hydrogen.

“However, it needs to be stressed that the financial viability of our renewables procurement will be influenced by Eskom/Nersa’s pricing structures,” the authors write, adding that: “The extent to which Eskom is able to green its electricity generation, and the pace at which it rolls out renewables, will have a bearing on our decarbonisation efforts, and those of most manufacturing industries.”

Main impediment

Daily Maverick recently reported that the cost of green hydrogen was the main impediment to bringing projects to fruition. A new study published in the journal Nature Energy that tracked 190 projects over three years found that by 2023 only 7% of the announced green hydrogen production globally had been realised. A big part of the reason why is renewable energy and electrolyser costs.

The Just Energy Transition Project Management Unit in the Presidency and the Industrial Development Corporation of South Africa told this reporter that: “Currently, grey hydrogen (from steam reformation of methane gas) costs $1.50/kg to produce. Green hydrogen produced via electrolysis of water using renewables-generated electricity costs $5 to $6/kg. Approximately 60% of this cost is for electricity, 30% for electrolysers and 10% for transport, storage and other externalities. So, a reduction in price depends very much on renewable electricity generating costs falling still further. Additionally, the appropriate pricing of carbon taxes is another factor that will contribute to project viability.

“The costs of green electricity and of electrolysers will reduce, but not overnight. Furthermore, penalties in key global markets on goods produced using non-green technologies are ramping up over the next decade. We can anticipate that the right price point will be reached within the next few years. Based on the downward price trajectory of renewable energy and electrolyser costs, it has been projected that South Africa will reach $1.50/kg by 2037.” DM

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