Metallurgical coal to play a crucial role in electrification and decarbonisation

Shane Hansen, CEO, Kestrel Coal Resources

Metallurgical coal is a critical raw material in steelmaking via the blast furnace route, the dominant steelmaking process which accounts for approximately 3/4 of the world’s steel production requirements annually. Steel is the world's most important engineering and construction material and is used in every aspect of daily lives.

The role of metallurgical coal and steel in building infrastructure, particularly in supporting the economic growth in the developing world, is well documented. A growing population in the developing world with expanding spending power is needing more transportation, is consuming more energy and is consuming more data, all of which require steel to provide the enabling infrastructure to support these functions.

The role of metallurgical coal and steel in supporting economic growth through the construction of infrastructure is also highlighted by the infrastructure-led recovery from COVID-19, with many of the world’s governments announcing infrastructure intensive stimulus packages.

The role of metallurgical coal and steel in the energy transition is often less discussed, with base, precious metals and rare earth elements taking centre stage. The world is facing an enormous challenge to decarbonise, reduce emissions, and minimise the impact of climate change. To satisfy the Paris Agreement’s goal of limiting global warming to below 2°C in global temperatures and preferably limiting increases to 1.5°C, rapid, far-reaching, and unprecedented changes are required in all aspects of society.

To support the energy transition with many of the world’s largest economies setting net zero targets to 2050, according to IRENA (the peak international body on renewable energy) it's estimated that a total investment of more than US$110 trillion is required across all sectors to 2050, and metals will play a key role in facilitating this electrification and decarbonisation.

In reality, the role of metallurgical coal and steel is central to this theme, which underpins the construction of the key technologies and infrastructure required to enable the energy transition such as wind turbines, electric vehicles and upgrading infrastructure.

The upgrades to infrastructure are associated not only with the grid, but also with respect to the replacement of existing, and development of new, industrial complexes to incorporate the utilisation of clean energy alternatives (e.g. green hydrogen), all of which require steel for the manufacturing of components behind these technologies. The benefit for the metals and mining sector is not only the incremental demand upside, but that the additional supply is required immediately if the 2°C or 1.5°C scenarios are to be met.

All the current supply constraints in the mining complex such as permitting hurdles, lag time to production, and rising costs leading to high barriers to entry are relevant for the supply side equation for metallurgical coal. This will only become more amplified if demand related to the energy transition rises rapidly, requiring higher commodity prices to incentivise new supply, and providing tailwinds for metallurgical coal investment.

However some challenges need to be addressed in reducing CO2 emissions associated with the blast furnace steelmaking process. This is a hard-to-abate sector, with carbon capture and storage a near-term solution, and low-carbon replacement technologies more of a longer-term solution (in the order of decades).

Electric Vehicles (EVs)

Steel will play an essential role in the construction of the chassis and engines in EV manufacturing. Steel provides a lightweight and cost-effective alternative to other materials, with the added benefit of strength and ductility properties to ensure occupant safety and to protect vital vehicle components such as the battery system.

Just as importantly, steel will be used in the construction of the charging station infrastructure (such as for use in the external housing) that will power EVs, with a comprehensive charging network seen as one of the key bottlenecks needing to be alleviated for wide EV adoption.

Renewable Energy

In power generation, steel is essential to developing renewable power sources, providing a strong incentive for steelmaking raw materials (including iron ore and metallurgical coal).

For example, approximately 250 tonnes of coking coal are required to build a single offshore wind turbine, as steel is used to construct every main component of the wind turbine including the generator, blades, tower and foundation.

Infrastructure

There is a need for the upgrade and expansion of existing electricity transmission and distribution infrastructure as a result of the increased electricity demand from the shift towards electrification and renewable electricity technologies and EV technologies (both of which plug into the grid).

Throughout the electrical utility industry, steel is used in the construction of the full range of transmission line support structures, including power transmission poles, lattice towers, and other transmission and distribution assets. Steel is known to be well-suited for service in most atmospheric and underground environments and with proven long record of performance.

There will also be substantial steel-intensive requirements in the “greening” of manufacturing processes, when clean energy technologies must be constructed and retrofitted into the manufacturing flow sheet. For example, the production of green hydrogen will require not only sourcing electricity from renewable sources, but the new technology itself will require corrosion-resistant material such as steel for use in electrolyser components.

The retrofitting of carbon capture and storage solutions to existing manufacturing technologies is another example that requires steel as a material used in the construction of components.

While traditional drivers of the world's urbanisation and industrial growth will remain the mainstay of metallurgical coal demand, decarbonisation is set to drive growth rates above historic levels for the next multi-decade period.

New steelmaking technologies

Breakthrough technologies are starting to be introduced to decarbonise the steelmaking industry by managing emissions from the blast furnace method, which relies on metallurgical coal.

The most notable of these is replacing carbon with hydrogen as an iron ore reductant, and therefore generating water as a by-product instead of CO2. However these technologies are expected to be long-term solutions, possibly decades away from being in a state for widespread commercial adoption.

In the near term, the solution is the continuing use of carbon to reduce iron ore in the steelmaking process, coupling this process with carbon capture and storage. Investment in the metals and mining sector is vital to support the energy transition and to achieve the world’s climate goals.

The rapid pace of change means that clean energy technologies are becoming the fastest-growing segment of demand for metals. Central to this theme is steel and steelmaking raw materials, such as metallurgical coal. While traditional drivers of the world's urbanisation and industrial growth will remain the mainstay of metallurgical coal demand, decarbonisation is set to drive growth rates above historic levels for the next multi-decade period.

Therefore, investment in metallurgical coal is vital to meet the world’s climate goals and in supporting the energy transition. Without such investment, the current supply of metallurgical coal will be a limiting factor in achieving these goals. 