Gas will be ‘king’ for steelworks as green hydrogen drops off Labor’s agenda
In an exclusive interview with InDaily, SA Treasurer Tom Koutsantonis says gas will run the Whyalla Steelworks and SA Labor has no plans to revive its flagship green hydrogen power promises this state election.
The Malinauskas Labor government went to the 2022 state election with a bold vision for building significant green hydrogen infrastructure, with a $590 million price tag at the time.
It was the party’s first election pledge, and positioned Labor – at the time in opposition – as eager to be a leader in a “new, clean industry”, according to now Premier Peter Malinauskas.
But those plans were suddenly dropped one year ago this week when the state government introduced snap legislation to force the Whyalla Steelworks into administration, wresting it out of the hands of steel mogul Sanjeev Gupta.
A $2.4 billion city-saving package was then announced, co-funded by the state and federal Labor governments.
This meant the Malinauskas’ government’s flagship and debut policy – that was already dogged by controversy – was dropped overnight, with funds diverted to supporting local creditors of OneSteel and funding the administration of the asset; the only in the country that can produce long steel products for large construction projects and rail lines.
The green hydrogen project was planned to complement the steelmaking operations in Whyalla. Those plans were “deferred”, the Premier said on the day of announcing the steelworks package.
Asked by InDaily whether the state government was interested in pursuing a green hydrogen project again, South Australian Treasurer Tom Koutsantonis said: “We don’t have plans for it now” but believed business would eventually take the lead.
“Hydrogen is not a political pursuit or an ideological pursuit, it’s a matter of chemistry,” he said.
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“If you want to reduce iron oxides and remove the oxides, you need to have a catalyst. It’s either going to be coking coal, which is a blast furnace, or methane or hydrogen.
“The world is moving towards these technologies. Someone is going to build hydrogen electrolysers in Whyalla, ultimately to process iron oxide to iron. It’s not a matter of ‘if’, it’s a matter of ‘when’.”
He said his focus now was on protecting the jobs at the steelworks.
“That’s our focus,” he said.
“We don’t have plans for it now, but ultimately, one day, someone will, and we will be very supportive of that.
“Our agenda is going to be mainly focused on decarbonisation and getting the steelworks out of administration.”
The abandoned project would have created the world’s largest hydrogen electrolyser at Whyalla, powering green steel manufacturing at the steelworks that was listed as the nation’s 10th highest polluter in an Australian Conservation Foundation report in 2023 that analysed five years of safeguard mechanism data.
Last week, InDaily reported that the Treasurer ruled out having the state government buy Whyalla Steelworks if a sale – promised within 18 months of it being thrown into administration last year – fails to meet the deadline, saying it’s Canberra’s responsibility to ensure the sovereign capability is operational.
Koutsantonis’ comments followed a report last year warning a gas-led steelworks transition would require potentially billions of dollars of taxpayer subsidies.
The report – ‘A Strategy for Whyalla: Enabling the Transformation and Decarbonisation of the Steelworks’ – claimed public capital expenditure of between $1.7 billion and $2 billion over a decade in gas supply subsidies and gas pipeline infrastructure would be required to make the steelworks competitive.
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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”.
Koutsantonis told InDaily that “gas is going to be king” for the steelworks moving forward.
“There’s lots of work that we’re doing behind the scenes, making sure there’s availability of gas,” he said.
“And of course pipelines are key.
“We want every buyer to know that if they move towards direct iron reduction, they’re going to need gas.”
Four turbines to power the plant were already purchased by the state government, and a sales process remains underway to recoup more than $250 million spent by taxpayers on them.
There were also questions last year around the government’s handling of the now-defunct Office of Hydrogen Power SA, particularly an approximately $830,000 payout to one employee, while the scrapped agency spent more than $280 million over the three years before the project’s failure, according to an auditor-general report.
Earlier this month, the Treasurer ruled out having the state government buy Whyalla Steelworks if a sale – promised within 18 months of it being thrown into administration last year – fails to meet the deadline, saying it’s Canberra’s responsibility to ensure the sovereign capability is operational.
Administrators KordaMentha are currently running the steelworks and searching for a buyer to take over the asset after it was wrestled out of the hands of OneSteel, headed by steel mogul Sanjeev Gupta. The state government has continually said that a buyer would be found by August, 2026. A second meeting of OneSteel creditors is scheduled to happen by September 30 this year.
But he was tight-lipped on future funding for the asset. To date, the state and federal governments have spent about $2.6 billion on various initiatives surrounding the administration of the steelworks, including supporting local creditors left in the lurch by Gupta and the day-to-day operations of the Whyalla facility.
Stephen Patterson, Shadow Minister for Energy and Mining, told InDaily, “Labor has wasted time, money and effort on their hydrogen fantasy, and used the Whyalla Steelworks as a convenient scapegoat”.
“South Australians are now on the hook for $500 million in committed spending, including $285 million already spent, $125 million in contracts and $87.4 million in liabilities, not to mention the $3.8 million allocated to privatising the turbines they purchased for the failed project.
“Meanwhile, South Australians are paying 43 per cent more for their power than when Labor took office.
“Instead of picking winners and wasting taxpayer money on unproven vanity projects, a Liberal Government will instead support the private sector, with their expertise and capital, to drive innovation.
“The Liberal Party have long said that any path to low emissions steel needs to first come from natural gas rather than Labor’s now disproven strategy of jumping straight from coking coal to green hydrogen, with South Australians left to pay a once in a generation waste of taxpayer’s money.”
