According to the analysis, South Australia’s lack of a competitive advantage in gas stands out as a weakness that could directly affect the future of Whyalla. As the global steel industry accelerates its shift away from fossil fuels, it is stated that a gas-based production model is unlikely to remain viable in the long term. It is also noted that the increase in oil and gas prices following the Iran crisis has further intensified this risk.
Simon Nicholas, Global Steel Lead Analyst at IEEFA, stated that the early-stage use of green hydrogen in low-carbon iron and steel production has now become a global reference point, adding that South Australia is moving in the opposite direction of this trend. Nicholas said, “While the global steel industry is increasingly focusing on the energy security advantages of green hydrogen, South Australia is shifting in favor of gas. This creates the risk of the state falling behind from a leading position to a lagging player.”
The report also recalled that in February, the South Australian government reached an agreement with Santos to supply gas to the Whyalla plant for a period of 10 years starting from 2030. It was noted that this agreement, with an annual volume of 20 petajoules, would double the state’s industrial gas demand. However, it was stated that the rise in global energy prices following the Iran crisis has made the economic risks of this plan more apparent.
The report emphasized that gas prices in the Middle East and North Africa, where Direct Reduced Iron (DRI) technology is widely used, are significantly lower compared to Australia. According to 2024 wholesale gas prices shown in the visual, China recorded the highest level at 12.5 AU$/GJ, while Australia stood at 10.3 AU$/GJ. Prices were recorded at 7 AU$/GJ in Egypt, 6.4 in Malaysia, 6 in Bahrain, 5.1 in Oman, 3 in the United States, 2.2 in Qatar, and 1.4 in Canada. This comparison highlights Australia’s significant disadvantage in gas costs.
The analysis also noted that China, as Australia’s largest iron ore customer, is increasingly focusing on the energy security advantages of green hydrogen in steel production. Meanwhile, countries such as Oman are attracting green steel projects by leveraging their low-cost gas advantage, with plans to transition these projects to green hydrogen over time.
The report also referred to the South Australian government’s election-period statement that transitioning from coal to gas at the Whyalla plant would deliver the “decarbonized iron product demanded by the world,” emphasizing that gas-based DRI technology does not meet this claim. According to World Steel Association data, gas-based production results in approximately 1.7 tons of CO₂ emissions per ton, whereas this figure can drop below 100 kilograms when renewable energy-supported green hydrogen is used.
The analysis also highlighted the transformation process in Europe, noting that large-scale incentives supporting the transition from coal to gas-based production in facilities exposed to high gas prices have not always been successful. In this context, a coordinated policy framework at both the state and federal levels was recommended for Whyalla.
IEEFA stated that public support should not focus solely on capital investments but should also aim to reduce green hydrogen costs and develop premium offtake mechanisms for genuinely low-carbon steel. The report also emphasized the need to establish a transition plan that gradually reduces gas usage while increasing the share of green hydrogen throughout the 2030s.
According to the analysis, scaling up green hydrogen production based on South Australia’s renewable energy potential could reposition the region as a global leader in green iron and steel production. Otherwise, a model based on long-term gas dependency may weaken competitiveness in terms of both costs and carbon regulations.
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