If green iron is the future for Whyalla Steelworks, locking in gas is a dead end

In November 2025, economist and climate policy expert Rod Sims said that Whyalla provides the litmus test for the commonwealth and South Australian governments’ commitment to green iron – Australia’s number one new-economy export opportunity.

The governments were faced with a decision between underwriting and subsidising a methane gas pathway, which will never be competitive in Australia or in global markets, and supporting a green hydrogen pathway that has the potential to be competitive. 

On Tuesday, the Albanese and Malinauskas governments announced a $20m joint loan facility to support the Magnetite Expansion Project (MEP1) in the Middlebank Ranges.

The loan facility, which will facilitate the production of up to 2.5 million tonnes per annum (MTPA) of high-grade magnetite, a critical feedstock for lower-emissions iron and steelmaking, is a welcomed step in the right direction. It comes the same day as South Australia’s (SA) Razorback magnetite mine proposal has been elevated to Major Project Status by the federal government, the only iron ore project in Australia to achieve such status.

In a November 2025 report Climate Energy Finance (CEF) outlined a pathway for the SA government to enable and facilitate the state’s magnetite industry as a precursor to a broader green iron industry and to transform the Whyalla Steelworks in a phased approach: prioritising the construction of a new electric arc furnace (EAF) to replace steelmaking capacity, followed by a new green iron facility as green hydrogen economics continue to improve. 

It is also positive to see the administration process for Whyalla Steelworks has attracted interest from more than 70 parties worldwide, with five domestic and international groups now shortlisted and undertaking detailed technical, financial and operational due diligence over the coming months. 

However, there was worrying reporting yesterday about a potential gas lock-in to Whyalla.

In an interview with South Australia’s InDaily on Monday, SA Treasurer and minister for energy and mining, Tom Koutsantonis, said that methane gas would be “king” for the future of the Steelworks, with no plans from SA Labor to revive its flagship green hydrogen strategy following the upcoming state election.

“There’s lots of work that we’re doing behind the scenes, making sure there’s availability of gas, and of course pipelines are key,” Koutsantonis said. “We want every buyer to know that if they move towards direct iron reduction (DRI), they’re going to need gas.” 

CEF again urges the SA government to reevaluate the unsustainable cost and untenable risk of locking-in a fossil gas “transition” for the facility.

In CEF’s November report, we highlighted that Whyalla then stood at a crossroads. The forced administration of the Steelworks in February 2025 was a critical nation-building opportunity to pivot from fossil fuel-based steel to a model in which SA’s abundant, world-leading renewables and magnetite resources are deployed to produce green iron and steel in a global marketplace undergoing a nascent but momentous shift to a future of zero-emissions iron and steelmaking. This requires a renewables – not gas – powered EAF to produce green steel.

Expensive gas is not a viable solution for Whyalla, in the interim nor in the long-term. Leaving aside the flawed assumption that gas is key to phasing in decarbonisation, it is economically unviable.

SA has some of the highest-cost domestic methane gas in the gas producing-world at an average of A$13/GJ in FY25. This puts the state at one of the largest comparative disadvantages in Australia in industrial processing and manufacturing powered by gas, with a declining local gas resource.

CEF analysis shows that to just halve the commercial gap in methane gas prices here compared to other DRI producing nations in the US and Middle East, taxpayers could be on the hook for up to $2bn over the coming decade. 

Absent an international price on carbon, a renewables-led green transformation of the Whyalla Steelworks will require significant government support, but SA’s comparative advantage is in its abundance of renewable energy resources to power an EAF, not to prolong an already beyond end-of-life blast furnace.

A ‘no-regrets’ green pathway would be the lowest-cost pathway in the long-term, even as that means a phased approach of a scrap-based EAF and scaling magnetite mining first, and green hydrogen powered green iron in a second phase. 

Minister Koutsantonis says the focus of the SA government is on safeguarding the jobs at the Steelworks. The gas detour is a dead end. A renewables-based decarbonisation of the Steelworks ensures that high-quality, future-proof jobs are aligned with global decarbonisation trends rather than vulnerable to them. 

If we’re going to do massive subsidies, let’s at least back the best solution for a decarbonising world via a phased approach. Today’s announcement of support for the expansion of the Middlebank Range is an important step in the right direction. Now let’s build in decarbonisation of processing from the get-go.

Matt Pollard is an analyst at Climate Energy Finance