Europe’s green steel push hits hydrogen wall

Europe’s transition to low‑emission steel is increasingly shaped by hydrogen availability. While electric-arc-furnaces (EAFs) fed by hydrogen‑based DRI remain central to long‑term decarbonization plans, current cost and supply realities suggest a slower and more uneven rollout than early announcements suggested.

Hydrogen-based steelmaking clusters around low-cost power hubs

Projects with the clearest hydrogen ambition are tightly clustered in regions with access to low-cost renewable power, particularly Northern Europe and Spain.  Stegra’s plant in Boden alone accounts for 35% of European steel-based hydrogen demand by 2035, in a partial demand scenario. Large steelmaking plants planned by Blastr, SSAB and Hydnum steel are further flagship European hydrogen-steelmaking projects, benefiting from access to affordable low-carbon electricity and government support. Alongside these, standalone hydrogen-DRI projects such as GravitHy in France highlight growing momentum across the wider hydrogen-steel value chain.

Outside of these hubs, many integrated producers are opting for flexible DRI-EAF configurations, allowing operations to switch between natural gas and hydrogen, depending on market conditions. This approach reflects the uncertainty surrounding hydrogen costs and supply timelines, with steelmakers increasingly reluctant to commit exclusively to hydrogen-based pathways until infrastructure and cost-competitiveness improves.

Hydrogen demand outlook hinges on fuel-switching flexibility

Across all scenarios, hydrogen demand increased significantly, but the range of outcomes is wide. Many facilities can adapt between hydrogen-based and natural-gas-based DRI, meaning actual hydrogen demand will vary significantly with relative fuel prices, availability and green steel premiums.

In a low decarbonization scenario, hydrogen demand exclusively comes from dedicated hydrogen-DRI fed EAFs, whilst in a high and ambitious decarbonization scenario, a wider range of EAFs use a mix of hydrogen and natural gas as inputs.

Hydrogen constraints deepen as demand accelerates

Delays and delivery risks persist

Despite ambitious announcements, hydrogen-linked steel projects continue to face delays and cancellations, reflecting persistent economic and logistic headwinds. Thyssenkrupp’s indefinite postponement of its Duisburg green-hydrogen tender in 2025 reflects this challenges environment, alongside Salzgitter delaying its green hydrogen expansion by three years. 

Energy costs remain the core constraint

High electricity prices continue to anchor hydrogen production costs in Europe, limiting competitiveness against natural gas and conventional blast furnaces. With power accounting for 60-70% [1] of total green hydrogen costs, regional disparities in electricity pricing are crucial for viable economics. European industrial power prices remain structurally high – two to four times higher than the US and China- reflecting continued reliance on imported energy and exposure to gas-linked price volatility.  

While BF-BOFs use 0.05 MWh per tonne of steel production, EAFs use 0.45 MWh per tonne of steel, EU steelmaker estimated. This makes EAF-based installations 10 times more energy inefficient vs BOFs.

Supply outlook weakens as demand grows

While green-hydrogen demand is expanding, supply is struggling to catch up. Demand from European low-emission steel production alone could reach up to 0.5Mt by 2030, however only 2.7Mt of capacity globally having a Final Investment Decision (FID) (BloombergNEF)[2].

Green hydrogen projects have been scaled back and shelved across Europe, with Iberdrola and Repsol’s production targets falling by two thirds and 63% by 2030 respectively. Shell has also cancelled its planned Aukra Hydrogen Hub in Norway, following Equinor’s hydrogen retreat from the country.

Regional specialization and cost-driven strategies

In response to these constraints, regional specialisation is likely to accelerate, with hydrogen-based DRI production and steelmaking increasingly decoupling. Low-cost renewable regions, particularly Northern Europe and MENA, are expected to emerge as key hubs for competitive low-emission DRI production, supplying downstream steelmaking centres across Europe.

For market participants, this implies a more fragmented and trade-driven green steel landscape, where access to competitively priced hydrogen determines the pace and location of decarbonization. Until hydrogen costs fall materially, flexible DRI-EAF configurations and wider supply chains are likely to dominate over fully integrated hydrogen-based steelmaking routes.

Effect on EAF production costs

The cost impact of hydrogen remains a central uncertainty for the competitiveness of low-emission steel, accounting for a large share of total EAF production costs when using hydrogen-based DRI, contributing over 30% of costs in the near term. While this share declines over time as efficiency improves and costs moderate, it remains a key driver of overall cost variability. 

Indeed, using hydrogen with existing DRI modules in Europe would currently be too expensive to be competitive, with hydrogen prices around €5-8 per kg. A trade source in Northern Europe pointed out that the price of hydrogen should be “around €2.50-3.00 per kg to make it commercially viable for steelmaking.”

For a reference, around 140,000-150,000 tonnes per year of hydrogen would be required to fuel a single 2 million tpy DRI module, a mill source told Fastmarkets. 

This translates into a wide divergence in production costs across hydrogen price scenarios. By 2035, the difference between low- and high-hydrogen price assumptions results in a 11% gap in total EAF production costs, highlighting the sensitivity of steel economics to upstream energy inputs. This reinforces the strategic importance of securing access to low-cost hydrogen, as well as the continued appeal of flexible configurations that allow producers to switch between hydrogen and natural gas depending on market conditions.

1. Exacta H2 – https://www.linkedin.com/pulse/economics-green-hydrogen-what-really-determines-cost-qvgaf/
2. https://about.bnef.com/insights/clean-energy/hydrogen-supply-outlook-2024-a-reality-check/