Report warning: Gas-led Whyalla Steelworks transition a $2bn taxpayer ‘Santos subsidy’
A new report warns that a gas-led transition for the Whyalla Steelworks could benefit South Australian oil and gas giant Santos with billions of dollars in taxpayer funds.
Think tank Climate Energy Finance warned a gas-powered transition for the Whyalla Steelworks, rather than a push towards green iron and steel, would “be a grave strategic misstep” for the state and nation in a new report.
The report – ‘A Strategy for Whyalla: Enabling the Transformation and Decarbonisation of the Steelworks’ – claimed public capital expenditure of between $1.7 billion to $2 billion over a decade in gas supply subsidies and gas pipeline infrastructure would be required to make the steelworks competitive.
It claimed that SA had “some of the highest-cost domestic methane gas in the gas-producing world… putting the state at one of the largest comparative disadvantages in Australia in industrial processing and manufacturing powered by gas”.
The Whyalla Steelworks was plunged into administration in February 2025, with the state government appointing KordaMentha as administrators, which revealed creditors were owed more than $1.3 billion by former owner GFG Alliance.
The state and federal governments then announced a $2.4 billion rescue package for the Steelworks, which would fund the administration of the business so it could continue employing people and producing steel.
Before the administration of the steelworks, the state government planned on building a $600 million green hydrogen project to complement the steelmaking operations in Whyalla.
Funds from the proposed green hydrogen project were instead redirected to the Whyalla Steelworks rescue package, and the state’s ambitions with the technology were now on ice.
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South Australian Premier Peter Malinauskas had in recent months been a proponent of the importance of gas in the decarbonisation of the nation’s electricity network and for heavy industry.
The ABC reported that at the National Energy Forum in September, the Premier threw his support behind Santos’ Narrabri gas expansion project in New South Wales, which, if approved, would see a new coal seam gas field developed over 95,000 hectares.
The Climate Energy Finance report insisted the state government should reinstate its ambitions to generate green steel at Whyalla and turn the region into a first-of-a-kind green iron hub in the southern hemisphere.
“The SA Government must reevaluate the cost and risk of locking-in a fossil gas ‘transition’ of Whyalla,” read the report, co-authored by Climate Energy Finance founder Tim Buckley and economist Matt Pollard.
“Domestic gas prices in Australia make it uneconomic, and incompatible with Australia’s decarbonisation and climate ambitions.
“CEF’s analysis shows that public capital expenditure of $1.7bn to $2bn over a decade in gas supply subsidies and hundreds of millions in gas pipeline infrastructure spending would be required to just halve the competitive gap in pricing between SA and other direct reduced iron (DRI)-producing nations.”
It claimed Santos – a long-term gas supplier to the steelworks – would continue to be a beneficiary of the gas-led transition. It also expected a gas-based revitalisation of Whyalla would require a $500 million investment into the expansion of gas infrastructure, “posing significant risks of an enduring gas lock-in to Whyalla”.
“Billions in public capital towards a methane gas ‘transition’ of the steelworks is a taxpayer subsidy to Santos that Australia can ill-afford,” the report read.
“Australia does not have a gas shortage problem; more supply is not the solution. It has a gas export and price distortion problem, driven by Santos’ large-scale siphoning of domestic supply into export markets.
“A methane gas ‘transition’ in Whyalla is not possible without such an investment. Any allocation from the $1.9 billion fund capitalised by the state and federal government for the future of the steelworks would see taxpayer subsidisation of long-term gas pipeline capacity.”
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As reported by the AFR, Steelworks administrators KordaMentha said the investment required for the transformation of Whyalla would be up to $8 billion, which would modernise the facility and expand mining operations in the state’s Middleback ranges, where magnetite ore was plentiful.
CEF said unlocking the investment pipeline of magnetite deposits could grow production of the high-quality ore to 29.2Mtpa and generate $6 billion in export revenue and $300 million in royalties to the South Australian state budget every year.
But CEF was concerned that the leading bidder for the Steelworks – a consortium led by Australian steel producer BlueScope – would embed gas as the primary energy source for Whyalla.
“BlueScope has made it clear it does not accept the path to green iron and steel, but instead is demanding multibillion-dollar methane gas subsidies for long-term interstate supply if it is to proceed with its proposed ownership of the steelworks,” the report reads.
“BlueScope’s last right of refusal has massively undermined competitor bid interest from proponents that have the necessary and critical ambition to transform the facility into renewables-based production of iron and steel from the outset.”
CEF said the state government should focus on the green iron opportunity “with Whyalla as a lighthouse green iron project”.
“SA’s comparative advantage is in its abundance of renewable energy resources,” the report read.
“It is crucial that Australia grasp the generational opportunity that the re-industrialisation of Whyalla represents as a lighthouse project for clean commodities in Australia and Asia – and that requires an urgent prioritisation of clean energy supply in SA.”
Buckley – also a former managing director of investment bank Citigroup – said green iron “could prove to be our largest investment, employment and net export opportunity over the coming decades”.
“The logical place to start is with our world-leading magnetite iron ore resources in South Australia, a state that also leads the world in terms of its 72 per cent variable renewable energy penetration.
“The climate science is immutable, and the world must decarbonise. Australia needs to pivot from our dig-and-ship mentality of old to value-add our resources onshore with zero-emissions energy so we export “embodied decarbonisation”. With appropriate strategic vision and investment, South Australia can lead on this – one of the largest decarbonisation opportunities globally.”
