En­ergy de­mand growth a du­bi­ous ben­e­fit for in­dus­try

The Weekend Australian - Review - - Steel Special Report - Keith Orchi­son

EN­ERGY is a dou­ble- bar­relled is­sue for the steel in­dus­try. The enor­mous fore­shad­owed growth in global en­ergy de­mand of­fers steel mills a bur­geon­ing mar­ket, while the ex­pected in­creases in power prices flow­ing from car­bon con­straints is a con­sid­er­able headache for them.

Steel is crit­i­cal for en­ergy sup­ply. It is used in mines, off­shore pro­duc­tion plat­forms, pipe­lines, tankers, gen­er­a­tion plant, py­lons and ca­bles for power net­works and in elec­tri­cal mo­tors. It is also used in the con­struc­tion of wind tur­bines and in so­lar pho­to­voltaic pan­els — and it will be es­sen­tial for hy­dro­gen stor­age and de­liv­ery if de­car­bon­i­sa­tion of the global econ­omy leads to a shift away from fos­sil fu­els.

‘‘ Steel,’’ says the In­ter­na­tional Iron & Steel In­sti­tute, ‘‘ pow­ers our world night and day.’’

The prob­lem for the steel­mak­ers is that en­ergy, and elec­tric­ity in par­tic­u­lar, is also crit­i­cal to their world in a mar­ket where de­mand for the metal is soar­ing and com­pe­ti­tion is get­ting tougher. They are sig­nif­i­cantly ex­posed to a shift to a car­bon- con­strained en­vi­ron­ment. They use car­bon as a chem­i­cal re­duc­tant, and in­di­rectly through their use of elec­tric­ity and nat­u­ral gas.

In Europe the in­dus­try is com­plain­ing loudly that its gas and elec­tric­ity bills have in­creased ‘‘ dra­mat­i­cally’’ over the past three years, weak­en­ing EU steel­mak­ers’ in­ter­na­tional com­pet­i­tive­ness. The EU car­bon diox­ide trad­ing sys­tem, it says, has added sub­stan­tially to up­ward price pres­sures in the en­ergy mar­ket. Be­cause of en­ergy price volatil­ity in Europe, it adds, long- term con­tracts are now very dif­fi­cult to ob­tain, a sig­nif­i­cant prob­lem for a cap­i­tal in­ten­sive busi­ness that needs to make 20- year in­vest­ment de­ci­sions.

The in­dus­try’s prime green­house is­sue is that coal and coke are es­sen­tial raw ma­te­ri­als in mak­ing iron and steel. ‘‘ Emis­sions of car­bon diox­ide and other green­house gases are an un­avoid­able con­se­quence of cur­rent iron and steel man­u­fac­tur­ing tech­nol­ogy and likely to re­main so for the fore­see­able fu­ture,’’ BlueScope Steel, Aus­tralia’s largest listed man­u­fac­tur­ing com­pany, has told the in­quiry in to emis­sions trad­ing held by the state gov­ern­ments.

A steep change in tech­nol­ogy is be­ing pur­sued, it says, through Aus­tralia’s par­tic­i­pa­tion in the Asia- Pa­cific Part­ner­ship on Clean De­vel­op­ment and Cli­mate ( AP6) with the aim of re­duc­ing car­bon diox­ide emis­sions in steel­mak­ing through changes to iron ore pro­cess­ing. ‘‘ How­ever,’’ it adds, ‘‘ the new tech­nol­ogy is many years, and per­haps decades, away from com­mer­cial­i­sa­tion.’’

BlueScope points out that it is un­avoid­ably an en­ergy- in­ten­sive busi­ness, con­sum­ing 117 peta­joules of en­ergy in Aus­tralia each year.

The ad­van­tages of op­er­at­ing in Aus­tralia at present are three — some of the world’s high­est qual­ity iron ore is mined here; there are ex­ten­sive met­al­lur­gi­cal coal sup­plies; and world- com­pet­i­tive en­ergy sources. For BlueScope Steel, there is also the ad­van­tage of ac­cess to Port Kem­bla’s deep­wa­ter port.

A big con­cern for BlueScope Steel and other en­ergy- in­ten­sive man­u­fac­tur­ers in Aus­tralia is that the con­straints on green­house gas emis­sions now be­ing pro­posed by the fed­eral Gov­ern­ment and the op­po­si­tion are not likely to be ap­plied in coun­tries with whom they com­pete in the global mar­ket­place.

This in­cludes China, In­done­sia and Brazil in the steel in­dus­try. The Chi­nese steel mills are churn­ing out more than 350 mil­lion tonnes of prod­ucts a year and are ex­pected to reach 400 this year — com­pared with 7.5 mil­lion tonnes in Aus­tralia.

‘‘ Reg­u­la­tion of green­house gas emis­sions in de­vel­oped coun­tries alone could sim­ply see more and more steel pro­duc­tion mov­ing to the de­vel­op­ing world,’’ BlueScope told the pre­miers’ in­quiry. ‘‘ This will not cut global green­house gas emis­sions, and may ac­tu­ally in­crease green­house in­ten­sity if less ef­fi­cient tech­nol­ogy is used.’’

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