Arena gives $20m for key project designed to show Pilbara iron ore can be used for low carbon steel

The Australian Renewable Energy Agency (ARENA) has agreed to provide $19.8 million in funding for NeoSmelt, a key venture designed to prove that iron ore from Australia’s giant Pilbara mining province can be used to make low carbon steel.

NeoSmelt was launched in early 2024 by Australia’s two largest iron ore miners, BHP and Rio Tinto, who brought in the country’s biggest steelmaker, BlueScope, and have now extended the partnership to oil and gas giant Woodside and Japanese steel giant Mitsui after the new funding deal.

The companies want to build an electric smelting furnace pilot plant at Kwinana, south of Perth, to validate the technology and its potential to use iron ore from the Pilbara to decarbonise steelmaking in Australia. The project landed $75 million contribution from the Western Australian Government last year.

If successful, the project has the potential to unlock longer term alternatives to the traditional blast furnace steelmaking route and help ensure the longevity of Australia’s lucrative iron ore industry.

Steel is the most widely used form of metal in the world and is crucial in a range of sectors such as infrastructure, transportation, and buildings. But iron and steelmaking contribute around 8 per cent of global CO2 emissions because of the reliance on metallurgical coal and blast furnaces.

NeoSmelt will now begin a front-end engineering design (FEED) study to test and optimise the production of lower-carbon iron by using direct reduced iron (DRI) which is then fed into an electric smelting furnace (ESF).

This so-called DRI-ESF route could be a “transformative concept”, according to ARENA.

“Globally, the steelmaking industry makes up around eight per cent of global greenhouse gas emissions, so the decarbonisation opportunity is huge,” said Darren Miller, ARENA CEO.

“As the world’s largest producer of iron ore, Australia has an important role to play in reducing emissions across the steel value chain.

“This represents what the energy transition is all about – working together to achieve the most efficient and effective outcome for Australia’s key export industry to transition into a lower-emissions economy.

The FEED study will be used to help inform a final investment decision, expected some time in 2026, and Bluescope CEO Tania Archibald said the funding deal is a significant step towards developing a technology for lower-carbon emissions steelmaking using Pilbara ore.

“We now have the opportunity to develop world leading technology that will have potential application across the global steel industry and provides the foundation for a future Australian lower-carbon emissions iron export industry,” she said in a statement.

Rio Tinto says estimates show cuts of up to 80 per cent in CO2 emission intensity are potentially achievable processing Pilbara iron ore through a DRI-ESF pathway, compared with the current industry average for the conventional blast furnace steel route.

It says other lower CO2 emission-intensity production routes, such as electric arc furnaces, require scrap steel and DRI produced from high grade iron ore.

The ESF potentially allows for greater flexibility in input raw materials, addressing one of the key barriers to wider adoption of lower-carbon emissions technology. The ESF also has the potential to be integrated into a steel plant’s existing downstream production units.

Woodside’s role is as the preferred energy supplier, and the pilot plant would initially use gas to reduce iron ore to DRI. Once operational, the project aims to use lower-carbon emissions hydrogen to reduce iron ore.

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