DRI-EAF Economics for Indian Steel: The Natural Gas Bridge to Hydrogen and What the Numbers Actually Say
Direct Reduced Iron produced with natural gas drops Scope 1 emission intensity to between 0.8 and 1.4 tCO₂/t of crude steel, which translates to a massive 60 to 70 percent reduction compared to the traditional BF-BOF route. Excitingly, moving from natural gas DRI to hydrogen DRI doesn't require a brand new reactor; it just needs a feedstock switch. For Indian steel producers staring down CBAM costs of €60 to €165 per tonne over the next decade, this specific pathway completely transforms their EU market economics.
Key Takeaways
- Direct Reduced Iron (DRI) is produced by safely reducing iron ore with a reducing gas. This removes oxygen from iron oxide without actually melting it, operating at temperatures spanning 800 to 950°C. Natural gas reforming, which produces a H₂-CO syngas via processes like Midrex or HYL/Energiron, stands as the dominant DRI technology globally. Meanwhile, coal-based DRI via the rotary kiln process overwhelmingly dominates India's own DRI production, accounting for approximately 75 to 80 percent of India's annual output of 38 to 40 million tonnes. While this makes India the highest DRI producer globally, coal-based DRI emits approximately 2.5 to 3.0 tCO₂/t DRI, which is not meaningfully lower than the BF-BOF route on a gate-to-gate basis. Conversely, natural gas DRI produces approximately 0.9 to 1.2 tCO₂/t DRI. Meanwhile, hydrogen DRI produces a stellar 0.1 to 0.2 tCO₂/t DRI when generated using green hydrogen from renewable electricity.
- The CBAM-relevant metric focuses on the Scope 1 emission intensity of crude steel rather than just the DRI. In a DRI-EAF route, the Scope 1 embedded emission of crude steel combines the DRI production emission from the reducing gas with the EAF steelmaking emission from electrode combustion and auxiliary fuel use. For natural gas DRI-EAF, this combined Scope 1 intensity sits at approximately 0.8 to 1.4 tCO₂/t of crude steel. This is significantly below India's BF-BOF average of 2.1 to 2.3 tCO₂/t, and safely below the EU CBAM benchmark of approximately 1.37 tCO₂/t for primary steel. Natural gas DRI-EAF steel therefore carries a near-zero or outright zero CBAM obligation on EU exports, completely transforming the EU market economics for Indian producers operating this route.
- The hydrogen upgrade pathway is arguably the most important technical feature of the Midrex and HYL/Energiron natural gas DRI processes. Both systems are specifically designed to accept hydrogen blending seamlessly into the reducing gas, handling up to 100 percent hydrogen in the Midrex H₂ and Energiron ZR (zero reformer) configurations. This means that a plant built today for natural gas DRI can transition progressively to hydrogen DRI simply by substituting hydrogen for natural gas in the reducing gas mix, without ever replacing the main shaft furnace reactor. The capital cost of the hydrogen transition from a natural gas DRI plant is essentially just the cost of the hydrogen supply infrastructure, such as the electrolyser, storage, and compression, rather than buying a completely new reactor.
- India's current natural gas DRI capacity sits at approximately 5 to 7 million tonnes per year. This is highly concentrated at JSPL's Raigarh and Angul plants, Essar Steel's Hazira plant (now successfully operated by ArcelorMittal Nippon Steel), alongside smaller plants across Gujarat and Andhra Pradesh. This critical capacity represents approximately 12 to 18 percent of India's total DRI output and carries the precise emission profile that makes natural gas DRI-EAF fiercely competitive in the EU market, even without an immediate hydrogen transition.
- The Viksit Bharat steel capacity target envisions 300 MMT by 2047, up from approximately 150 MMT today, implying the addition of 150 million tonnes of new steelmaking capacity over the next two decades. Every single increment of that new capacity built on natural gas DRI-EAF rather than BF-BOF actively reduces India's structural CBAM exposure in the 2030s and 2040s, while concurrently creating a hydrogen-ready production footprint ready to transition to green steel as H₂ costs steadily decline. The capacity decisions made between 2026 and 2030 will fundamentally determine India's 2040 steel sector emission trajectory.
- JSPL's Angul steel complex remains the most advanced DRI-EAF operation in India, boasting an integrated DRI-EAF-thin slab casting line that produces structural steel and flat products at emission intensities significantly below the BF-BOF fleet average. JSPL has publicly announced plans to introduce hydrogen into its DRI process at Angul in tight alignment with the SIGHT programme, positioning it as the most likely first commercial-scale hydrogen-DRI site in India's entire steel sector.
India is the world's largest producer of Direct Reduced Iron. Producing 38 to 40 million tonnes per year, more than the next three countries combined, India has built a DRI manufacturing base that is structurally positioned to lead the global transition to hydrogen-based ironmaking. The challenge is that India's DRI leadership is predominantly in the wrong technology variant. Approximately 75 to 80 percent of India's DRI is produced through coal-based rotary kiln processes. This technology reduces iron oxide with coal-derived reducing gases and produces DRI with an emission intensity of 2.5 to 3.0 tCO₂/t DRI, which is barely lower than the blast furnace route it is notionally replacing.
On the flip side, natural gas DRI processes like Midrex and HYL/Energiron, which produce DRI in a shaft furnace using reformed natural gas as the reductant, carry an emission intensity of approximately 0.9 to 1.2 tCO₂/t DRI. This represents a massive 60 to 70 percent drop below the coal-based alternative. In the context of CBAM, which covers the Scope 1 embedded emissions of the crude steel produced from the DRI rather than just the DRI itself, this intensity difference translates directly into a near-zero CBAM obligation for natural gas DRI-EAF steel exported to the EU. For Indian steel producers currently weighing the BF-BOF versus DRI-EAF route decision for their next capacity increment, this CBAM calculus has become the financially dominant variable.
The emission intensity comparison: gate-to-gate for crude steel
Coke oven and blast furnace coke combustion: ~0.95 tCO₂/t crude steel
PCI (pulverised coal injection): ~0.35 tCO₂/t
BOF steelmaking (CO from carbon dissolution): ~0.15 tCO₂/t
Process emissions (flux calcination, etc.): ~0.10 tCO₂/t
Auxiliary fuel combustion: ~0.60 tCO₂/t
Total BF-BOF Scope 1: ~2.15 tCO₂/t crude steel
Natural Gas DRI-EAF Route:
DRI shaft furnace (natural gas reforming, CO₂ in off-gas): ~0.65 to 0.90 tCO₂/t crude steel
EAF steelmaking (electrode combustion and auxiliary fuel): ~0.10 to 0.15 tCO₂/t
Casting and rolling auxiliary fuel: ~0.05 tCO₂/t
Total Nat. Gas DRI-EAF Scope 1: ~0.80 to 1.10 tCO₂/t crude steel
Hydrogen DRI-EAF Route (100% green H₂ reductant):
DRI shaft furnace (H₂ and iron ore becoming Fe and H₂O; near-zero CO₂): ~0.02 to 0.05 tCO₂/t
EAF steelmaking (electrodes and scrap top-up): ~0.08 to 0.12 tCO₂/t
Total H₂-DRI-EAF Scope 1: ~0.10 to 0.17 tCO₂/t crude steel
BF-BOF: CBAM Position April 2026
Natural Gas DRI-EAF: CBAM Position April 2026
The natural gas to hydrogen upgrade pathway
The most commercially important technical feature of the Midrex and HYL/Energiron processes is their inherent hydrogen compatibility. Unlike coal-based rotary kiln DRI, which is a fundamentally coal-dependent technology with no hydrogen upgrade pathway, the shaft furnace processes used in natural gas DRI are designed around reducing gases that can gracefully contain varying hydrogen percentages. In a standard Midrex plant, the reducing gas exiting the reformer is approximately 55 percent H₂ and 36 percent CO by volume. As hydrogen is blended directly into the reducing gas, either bypassing or supplementing the reformer, the CO₂ emissions from the DRI process fall perfectly proportionally.
At a 30 percent hydrogen blend in the reducing gas, DRI shaft furnace Scope 1 emissions fall by approximately 20 to 25 percent from the pure natural gas baseline. Pushing this to a 70 percent hydrogen blend sees emissions fall by approximately 55 to 60 percent. At 100 percent hydrogen, representing the Midrex H₂ and Energiron ZR configurations, shaft furnace CO₂ emissions approach zero, leaving only small amounts from electrode combustion in the EAF and auxiliary fuel use in casting and rolling. This progressive substitution capability means that steel plants can align their hydrogen transition pace precisely with the declining cost curve of green hydrogen, increasing hydrogen blend percentages exactly as green hydrogen becomes cost-competitive at each threshold level.
| H₂ Blend (% of reducing gas) | DRI Shaft Furnace CO₂ (tCO₂/t DRI) | Crude Steel Scope 1 (tCO₂/t) | CBAM Position vs ~1.37 benchmark | H₂ Cost at Green H₂ $4/kg |
|---|---|---|---|---|
| 0% (pure natural gas) | 0.90 to 1.20 | ~1.00 to 1.30 | At/near benchmark, meaning zero or minimal CBAM | Not applicable |
| 30% H₂ blend | 0.68 to 0.90 | ~0.78 to 1.05 | Below benchmark, zero CBAM | ~$150/t DRI incremental H₂ cost |
| 70% H₂ blend | 0.36 to 0.48 | ~0.46 to 0.60 | Well below benchmark, zero CBAM and green taxonomy Tier 3 | ~$350/t DRI incremental H₂ cost |
| 100% H₂ (green) | 0.02 to 0.05 | ~0.10 to 0.17 | Near-zero CBAM and green taxonomy Tier 4 | ~$500/t DRI incremental H₂ cost at $4/kg H₂ |
The table reveals that the economics of hydrogen blending are rarely all-or-nothing. A natural gas DRI plant running at a 30 percent hydrogen blend reduces its Scope 1 intensity to approximately 0.78 to 1.05 tCO₂/t, sitting well below the EU CBAM benchmark and therefore carrying zero CBAM obligation. This occurs at an incremental hydrogen cost of approximately $150/t of DRI produced. At $4/kg green hydrogen and a DRI hydrogen requirement of approximately 37.5 kg per tonne of DRI for the 30 percent blend increment, this represents a cost of approximately $150/t DRI, or about Rs 12,600/t DRI at current exchange rates. For a DRI-EAF plant where the DRI input cost typically hovers around Rs 25,000 to 35,000 per tonne, adding Rs 12,600 in hydrogen cost to eliminate the CBAM obligation of approximately €62/t (about Rs 5,500/t at current EUR-INR) on EU-bound steel is not commercially justified at current CBAM prices. The H₂ cost simply exceeds the CBAM saving at low blend ratios. However, at a 70 percent hydrogen blend, the CBAM saving (zero obligation on steel that would otherwise carry €62 to €165/t) increasingly dominates the incremental hydrogen cost as EU ETS prices climb steadily toward 2030.
Why JSPL's Angul DRI complex is India's most strategically positioned steel asset for the 2030s.
JSPL's Angul plant in Odisha operates India's largest natural gas DRI capacity in a highly integrated configuration with electric arc furnaces that produce structural steel, rails, and plates. The site enjoys several structural advantages that make it the most likely location for India's first commercial hydrogen DRI operation. Odisha's 50 percent CSS exemption for open access renewable electricity actively reduces the cost of the renewable power needed for green hydrogen electrolysis. Additionally, the Angul site sits on the eastern grid, which will receive progressively lower-emission electricity as Odisha's RE capacity rapidly builds. JSPL has publicly stated its intent to introduce hydrogen at Angul under the SIGHT programme. Unlike BF-BOF integrated plants that face the massive complexity of maintaining a continuous blast furnace while introducing new technology, JSPL's DRI shaft furnaces can be hydrogen-transitioned campaign by campaign without any serious production interruption. Angul is India's template for the hydrogen DRI transition. What happens there between 2026 and 2030 will define the trajectory for the broader industry.
Frequently Asked Questions
Why is coal-based DRI not considered a decarbonisation pathway for India's steel sector?
Coal-based DRI, produced in rotary kilns using non-coking coal, has a Scope 1 emission intensity of approximately 2.5 to 3.0 tCO₂/t of DRI produced. This is roughly the same as India's blast furnace route at the critical iron ore reduction step. When this coal-DRI is then used in an EAF to make crude steel, the total Scope 1 intensity of the crude steel sits at approximately 2.0 to 2.5 tCO₂/t, which is similar to BF-BOF and well above the EU CBAM benchmark. Ultimately, coal-based DRI does not solve the CBAM problem; it simply replicates it. Only natural gas DRI or hydrogen DRI produces iron with the genuinely low emission intensity that enables steel production safely below the CBAM benchmark. India's coal-based DRI advantage is strictly a production volume asset, not a decarbonisation asset.
What is the capital cost of converting a natural gas DRI plant to hydrogen DRI?
The capital cost of hydrogen-enabling a natural gas Midrex or Energiron shaft furnace is primarily wrapped up in the electrolyser capacity and hydrogen compression/storage infrastructure, rather than the reactor itself. For a 1 MTPA DRI plant transitioning to a 30 percent hydrogen blend, the electrolyser capacity required is approximately 50 to 70 MW depending on operating hours and hydrogen storage, carrying a capital cost of approximately Rs 300 to 500 crore at current electrolyser prices. For a 70 percent hydrogen blend, the requirement rises to approximately 120 to 160 MW and costs Rs 700 to 1,200 crore. Moving to 100 percent hydrogen requires approximately 200 to 250 MW and Rs 1,200 to 2,000 crore. Crucially, these figures will decline significantly as electrolyser costs fall, especially as the NGHM targets a 5× reduction in electrolyser manufacturing costs through the SIGHT PLI programme by 2030.
Can India's coal-based DRI plants be easily converted to natural gas DRI?
No, this is not economically viable. Coal-based rotary kiln DRI uses a fundamentally different reactor technology from shaft furnace natural gas DRI. A rotary kiln simply cannot be retrofitted to use natural gas or hydrogen as the core reductant. Converting from coal-DRI to gas-DRI requires completely replacing the entire DRI plant, not just modifying the existing one. Given that coal-DRI plants in India have asset lives of 15 to 25 years, the economic case for full plant replacement depends entirely on the CBAM cost trajectory, CCTS GEI target stringency, and the differential in operating costs between coal-DRI-EAF steel and natural gas-DRI-EAF steel at current gas prices. For plants rapidly approaching the end of their operating lives, replacement with natural gas DRI is the only commercially rational choice. For plants with 10 to 15 years of remaining life, the decision requires a deep, full NPV analysis strictly against the specific asset's cost structure.
- Midrex Technologies, Midrex Process technology overview outlining natural gas and hydrogen DRI configurations
- Tenova HYL/Energiron, Energiron ZR process detailing zero reformer hydrogen DRI technology
- worldsteel, Steel statistical yearbook 2025 covering DRI production by country and technology
- Mission Innovation, Green hydrogen steel cost curves from their global analysis in 2025
- JSPL, JSPL Annual Report FY2025 detailing Angul DRI-EAF capacity and forward-looking hydrogen plans