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Feasibility Report

Feasibility Report on the Production of Direct Reduced Iron:

In the given report, the advantages of using natural gas to produce steel is considered from technical, economical and environmental points of view. The major processes that have been developed to facilitate this production are reviewed as well as the availability of the associated raw materials. It is found that of the multiple processes investigated for steel production,

Benefits for Iron & Steel Industry by using Natural Gas:

The following items provide the industrial background for DRI to develop fast:

The cost per unit of produced iron could be reduced either for Pakistan those with great resources
of natural gas.

Natural gas could be considered the most environmentally friendly fossil fuel, because it has the
lowest CO2 emissions per unit of energy. So, by using natural gas to produce reducing agent, DRI process will be a better choice with respect to other technologies (Coal or Coke Based).

Direct reduction of iron (DRI) based on natural gas is relatively economically viable with
considerably low greenhouse gas emissions.

The Project considerations with regard to DRI method is organized in terms of providing a
qualitative business case for decision makers and also for the students who are interested in this project. I have considered business opportunity for developing iron industry in Pakistan, analyzing the iron market, capital and operational expenditures and environmental impacts.

By considering the Asian market for steel and also the available natural gas resources in Pakistan,
there is a special opportunity for using natural gas to produce Reduced iron with lower cost per ton in comparison with other producers worldwide.

This market opportunity as well as lower environmental impacts by using natural gas can
compensate the potential investment and operational cost overruns with respect to other methods.

Processes that are used for the general production are as followings: DRI, which includes o Midrex direct reduction o HYL direct reduction o SL/RN direct reduction Blast furnace

Business case for Building a DRI Plant in Pakistan:

I have found out the reasons behind initiating a project to build a DRI plant in Pakistan. This is important because these kinds of projects require huge amount of money to invest in. So, government organizations, private companies, suppliers and subcontractors, financial institutions, public media and other stakeholders should be convinced by a go/no go decision made by authorities.


Feasibility Report

As a model to our analysis we reviewed US Department of Energy research report (DOE, 2010), on different iron making processes. In this study, different iron making processes were compared and prioritized based on the following criteria: Capital Cost (CAPEX): The relative capital costs per unit production

Operating costs per unit production Simple Internal Rate of Return (I.R.R.) Total Cumulative Electric Power Consumption Total Cumulative Process Emissions

DRI statistics worldwide (Midrex, 2008)

The Study report of DRI Production through Midrex process shows good Rank among other iron making technologies. Consequently, it is a good candidate for establishing an iron making plant in Pakistan. We have checked and analyzed the Technical & Economical Feasibility of DRI Plant from the following perspectives: 1-Market analysis: Steel industry plays a vital role in the economic growth of the world. Thus, developing the steel industry in each country might be perceived as an indicator to show its economic growth. The World Steel Association report, on world steel forecast for 2011 and 2012, shows that world steel demands will grow by 5.4%. The amount of steel demand in different world regions through 2011 and this Table.


Feasibility Report

As it could be seen from the Table, iron and steel industry are highly influenced by the worlds economic, political and environmental conditions. For example, while the industry trend analysis had high growth forecasted in 2008, the world economic crisis lead to decrease in the steel demand and consequently the steel price fell down. (Arica, Vuvunikian, 2009) Political turmoil in Middle East and North of Africa also affected the forecasts for the 2011 demand for steel in this region. Japans earthquake is another example showing how environmental accidents can influence the industry progress in a special region. (World steel association, 2011). In spite of economic crisis, potential price increase could be expected for the market in the Asian iron market. This fact can potentially lead to business opportunities for producers with competitive advantages within this market. 2-Business Opportunity: Geographically, Sindh region is rich in terms of diverse natural resources including natural gas, metal ore and mineral deposits. So, by taking this fact into account, Pakistan government is going to exploit this opportunity to create value with close cooperation with neighboring countries, such as Saudi Arabia, Iran and China. Metal industry, one of the largest Pakistani industries, can benefit largely regarding this opportunity. 3-Capital expenditures: Capital investment is the most sensitive factor in analyzing the financial model of iron making processes. According to Grobler and Minnitt works (1999), the estimated capital investment for building a DRI plant is about US$200/ton to US$300/ton. In more recent estimate, investment costs for our project (DRI) the investment costs is approximately US$220/ton to US$225/ton(21835Rs/ton to 22330/ton). (IEA, 2010). Available infrastructures such as transportation facilities, natural gas pipelines, ports and harbors have great contributions on capital investment costs. Therefore, it could be concluded that selecting a right location for building a DRI plant can affect its financial viability (Grobler and Minnitt, 1999). Another important economic factor is related to the capacity of the plant. It is obvious that the more the capacity of iron production, the more capital investment requirements. The rough order of magnitude estimate of capital investments required to build a DRI plant in terms of the plant capacity has been shown in Figure.

Required capital expenditure in terms of DRI plant capacity (Metal Consulting International Report, 2010


Feasibility Report

4-Operating expenditures: Among operational cost factors, raw material play more vital role in financial model of the plant lifecycle. Main raw materials used in our project include iron ore and natural gas. Sindh regions have the competitive advantage of available resources for both iron ore and natural gas. So, instead of importing iron ore from other counties and paying CIF prices for them, building the plant at Sindh region might lead to decrease in operational cost. On the other hand, vast resources of natural gas in Norway, makes it available for cheaper prices. This fact partially compensates for higher natural gas prices compared with coal prices. 5-Location of the plant: As it could be seen from previous sections, determining the proper location for building a DRI plant has a great impact in terms of both capital expenditures and operational expenditures. Generally speaking, the following factors can affect the decision making about location of the plant (Gobblers and Minnit 1999):

Proximity to consumer market Proximity/availability of iron ore Proximity/availability of cheap and abundant natural gas or coal sources Favorable local socio-political situation
The intended location is close to the industrial facility at Karachi offering good links to existing infrastructure such as an incoming natural gas pipeline, methanol plant and harbor. It is analyzed that proximity to the market might result in 10% to 20% reduction in the production cost. 6- Environmental Advantages: Iron and Steel making industry has great effects on both releasing greenhouse gases and dust production, therefore, all the efficient improvements in different process steps to make it more environmentally friendly, are welcomed by producers worldwide. To achieve this goal, the following factors should be considered:

Producing less dust particles Generating less noise pollution Reducing the energy consumption of the steel making process Reducing the GHG emissions Using steel waste products as a feedstock to produce salable products
In gas based DRI plants, the plant dedusting system is done by using special scrubbers and filters. In general, because the plant uses natural gas and pelleted iron ore, the overall dust produced in this process is much less than the other iron making processes. In 2000, U.S Department of Energy in cooperation with Carnegie Mellon University conducted an investigation on CO2 and energy consumption of different iron making processes. They calculated theoretical minimum energy requirements to produce iron with different processes. Their findings provided great information in terms of potential improvements in the energy consumption of the iron making processes.


Feasibility Report

Minimum energy requirements for different iron making processes (DOE, 2000)

7-Technical Advantages: The following list includes some of the known technical advantages of DRI route in comparison with blast furnace route: Lower operational pressure Much more energy efficient Higher quality products in terms of carbon content flexibility and high degree of metallization Single reformer instead of reformer heater combination No need to pre cool the reformed gas No need to a separate CO2 removal system No need to further treatment to lower the carbon content of the products