The Whyalla steelworks might be the best place in the world to make low-cost green iron. Will Labor seize the moment?

Whyalla provides the litmus test for the commonwealth and the South Australian government’s commitment to green iron. It has all the right ingredients for a thriving, globally competitive green iron industry. In addition to low-cost energy, there is plentiful magnetite ore – ideal for making green iron.

Combine these inputs with the available port and the existing skilled workforce, and you have perhaps the best location for making low-cost green iron in the world.

The administration process for the Whyalla steelworks’ assets could be a defining choice about the future of Australia’s industrial production capability in a changing world. The opportunity to secure lasting prosperity, leveraging the natural advantages of the region, looms large. And that advantage is based in green production, not gas.

The opportunity to secure lasting prosperity, leveraging the natural advantages of the region, looms large. And that advantage is based in green production, not gas.

While the administrator of the Whyalla steelworks has given Bluescope a right of last refusal in the tender to run the facility – which in commercial terms is usually a licence to operate – this does not mean the amazing opportunity for Whyalla to be a green production facility is over.

Yes, Bluescope has been clear that it has no interest in green iron, even going so far as to say that green iron technology is not proven (which is clearly untrue); and yes, Bluescope’s status has deterred competing bidders who are seeking a green pathway.

But the success of the Whyalla facility is in the hands of the commonwealth and South Australian governments. We will now discover whether or not they are committed to a green transition and the Future Made in Australia (FMIA) policy.

In February the South Australian government forced the Whyalla steelworks into administration and appointed advisory firm KordaMentha as administrator, given that creditors were owed over $1bn. Around that time the commonwealth and South Australian governments announced a joint rescue package of $2.4bn.

The Whyalla steelworks comprise mining (in particular magnetite ores), a blast furnace and a basic oxygen furnace to make crude steel, a downstream fabrication facility and a port to load and ship the product.

The South Australia government has long talked of the state being a leading green iron centre and has backed this up with legislation and funding. The main focus of the commonwealth’s FMIA policy, meanwhile, is on the net zero transformation and on the policies and legislation to achieve this.

These policies have often been said to ideally suit green iron; indeed, they were likely formulated with green iron in mind.

The administrator’s choice is between a technology utilising gas – which can never be competitive in Australia – and one using green hydrogen that likely will be. Both technologies require significant initial government support; only green iron will get to the stage where this support is no longer needed as the world decarbonises.

Why can’t using gas to make iron and steel be competitive in Australia?

Gas on Australia’s east coast costs about $12 to $13 a gigajoule, or around four times that of prices in the Middle East and the US. High gas prices have seen Australia lose many industries that use gas as a feedstock.

It is insanity to start a new industry which you know can never be profitable and which will always rely on continuing taxpayer support to subsidise high gas prices. Further, taxpayers would be subsidising more fossil fuel use into our economy when government policy is to reduce our reliance on fossil fuels.

It is insanity to start a new industry which you know can never be profitable and which will always rely on continuing taxpayer support to subsidise high gas prices.

Then there is the question of timing. Using gas requires significant expansion of a small pipeline, which will cost many hundreds of millions and take considerable time. Wind and solar construction could be completed in the time it will take to construct the much larger pipeline.

The Spencer Gulf, where Whyalla sits, has excellent solar and wind resources that will see some of the lowest-cost green electricity prices in the world. Backup can come from a connection to the grid, batteries – whose prices are continually falling – and low capital-cost, high operating-cost peaking gas – rarely needed but always available.

Modelling by the Superpower Institute suggests the Whyalla region is well-suited to making green iron and can produce at costs that are competitive with fossil fuel-made iron, especially once the environmental impacts of fossil fuels are factored in.

It must be asked: if not now, when? And if not here, where?