WHyalla is a litmus test for the Commonwealth and the South Australian Government's commitment to green iron. It has all the necessary ingredients for a thriving and globally competitive green iron industry. In addition to cheap energy, there is a lot of magnetite ore, ideal for the production of green iron.
Combine these resources with an existing port and existing skilled workforce, and you have perhaps the best location in the world for producing low-cost, green iron.
The asset management process at Whyalla Steelworks could be a defining choice for the future of Australia's industrial production in a changing world. The opportunity to create long-term prosperity by taking advantage of the region's natural advantages looks very promising. And this advantage is based on environmentally friendly production, not gas.
While the Whyalla Steelworks administrator donated by Bluescope The right of last refusal to tender to operate the site – which in commercial terms would normally amount to an operating license – does not mean Whyalla's amazing opportunity to become a green manufacturing facility is over.
Yes, Bluescope has made it clear that it is not interested in “green iron” and even went so far as to say that “green iron” technology is unproven (which is patently false); and yes, Bluescope status discourages competing bidders looking for a greener route.
But the success of the Whyalla site lies in the hands of the Commonwealth and South Australian governments. Now we find out whether they are committed to the transition to a green economy and the Future Made in Australia (FMIA) policy.
In February The South Australian government forced the Whyalla steelworks into administration and appointed consultancy firm KordaMentha as administrator, with more than $1 billion owed to creditors. Around the same time, the Commonwealth and South Australian governments announced a joint $2.4 billion aid package.
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The Whyalla Steelworks includes a mining facility (particularly magnetite ores), a blast furnace and converter furnace for the production of crude steel, downstream production facilities and a port for loading and unloading of products.
The South Australian government has long said the state is a leading green iron hub and backs this up with legislation and funding. Meanwhile, the focus of the Commonwealth's FMIA policy is on net zero transformation and the policies and legislation to achieve this goal.
It is often said that this policy is ideal for green iron; indeed, they were probably designed with green iron in mind.
The administrator's choice is between gas-based technology – which will never be competitive in Australia – and green hydrogen technology, which is likely to be. Both technologies require significant initial government support; only green iron will reach 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 between $12 and $13 per gigajoule, about four times higher than prices in the Middle East and the United States. High gas prices have caused Australia to lose many industries that use gas as a feedstock.
It's crazy to create a new industry that you know can never be profitable and that will always rely on continued taxpayer support to subsidize high gas prices. Additionally, taxpayers will be subsidizing more fossil fuel use in our economy when government policy is aimed at reducing our dependence on fossil fuels.
Then the question of time arises. Using gas requires a significant expansion of a small pipeline, which will cost many hundreds of millions and take considerable time. Wind and solar power plants can be completed in the time it takes to build a much larger pipeline.
Spencer Gulf, where Whyalla is located, has excellent solar and wind resources that will result in some of the lowest prices for green electricity in the world. Backup can be provided by grid connectivity, batteries, whose prices are constantly falling, and the low capital costs and high operating costs of peak gas, which is rarely needed but always available.
Modeling by the Superpower Institute shows the Whyalla region is well suited for green iron production and can produce it at a cost competitive with iron produced from fossil fuels, especially when the environmental impact of fossil fuels is taken into account.
The question arises: if not now, then when? And if not here, then where?
Rod Sims is Chairman and Beitan Mullen is CEO of the Superpower Institute. Sims is also Professor of Entrepreneurship at the Institute of Applied Economic and Social Research, University of Melbourne.
