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UK Government Pledges £500 Million to Save Port Talbot Steelworks, Hydrogen-Based DRI Uncertain

4 Sept 2023

Port Talbot - The UK government is on the verge of providing £500 million ($632 million) to Tata Steel, an Indian conglomerate, in a bid to rescue and decarbonize the historic Port Talbot steelworks in Wales. However, the financial support package reportedly does not mandate the implementation of hydrogen-based direct-reduced iron (H2-DRI) technology. This omission raises concerns that the steelmaking process may only achieve partial decarbonization, potentially resulting in the closure of the iron-making section of the plant.

Port Talbot's steelworks, a long-standing candidate for closure by Tata Steel, has become the center of negotiations between the company and the UK government. Reports suggest that Tata Steel has requested up to £1.5 billion in funding to secure the facility's future.

The discussions, now in an "advanced" stage according to reports in the British press, have gained urgency due to the aging infrastructure of the Port Talbot plant.

Stephen Kinnock, Member of Parliament (MP) for Port Talbot, has expressed concerns regarding the exclusive focus on electric arc furnaces (EAFs) as the primary means of decarbonizing steel production. While EAFs can be employed for smelting iron or scrap metal into steel, questions have arisen regarding their capability to produce high-grade steel. Nevertheless, numerous experts emphasize that EAF technology has made substantial advancements in recent years.

Port Talbot's integrated iron and steelworks currently employs a coal-fired blast furnace to convert iron ore into "pig iron," a vital step in steel production. Tata Steel aims to transition to EAFs at the Port Talbot facility but has not provided additional clarity on the potential utilization of H2-based DRI technology.

Reports indicate that part of the agreement may involve Tata Steel shutting down the ironmaking segment of the factory and shifting to the use of scrap metal. However, this process can result in significant variations in steel quality.

Iron production, known for its high energy consumption, contributes to a substantial 8% of global greenhouse gas emissions within the steelmaking sector. As a result, hydrogen-based DRI is gaining prominence as a potential route for decarbonizing iron and steel manufacturing. H2-based DRI involves the use of hydrogen to chemically transform iron ore into "sponge iron," which can subsequently be used in steel production. Tata Steel is already engaged in H2-based DRI projects within its European operations, particularly at the Ijmuiden steel plant in the Netherlands, with the aim of producing H2-based DRI at the facility by 2030.

In a statement on its website, Tata Steel emphasized its ongoing discussions with the UK government to establish a framework for the continuity and decarbonization of steel production in the UK. Given the challenging business conditions arising from the aging of several key assets, Tata Steel underscored the necessity of government investment and support.

The UK government has refrained from commenting on ongoing commercial negotiations.

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