BlueScope has partnered with Rio Tinto and BHP to decarbonise ironmaking but there is no guarantee a future electric smelting furnace will be located in Port Kembla.
The partnership was announced today in Port Kembla, and will see the three ASX-listed corporations work together to study the feasibility of an electric smelting furnace pilot plant, with the potential to replace the coal-based blast furnace.
The alliance is in its early stages, but the group hope to commission a pilot facility as early as 2027.
The project aims to overcome a key impediment in the production of low carbon or green steel; the difficulty of using Australian iron ore in the direct reduced iron (DRI) process, which BlueScope expects to be the technological pathway to green steel.
The type and quality of Australian iron ore is not suited to this DRI process, which is being trialled overseas, and the partnership will explore applying the electric smelting technology that BlueScope uses at its New Zealand steelworks to Australian iron ore.
Speaking in Port Kembla on Friday, BlueScope's chief executive Australia Tania Archibald wouldn't put a price figure on what the project would cost, but said the financial burden would be shared equally between the partners.
What does this mean for Port Kembla?
Another key unknown is where the project would be located.
The project would need large volumes of natural gas initially, with the potential to then transition to green hydrogen. Large amounts of renewable electricity would be required to run the electrolysers producing green hydrogen, which is notoriously tricky to transport, and the Pilbara has room for many more solar farms than the Illawarra.
Ms Archibald said Port Kembla was a potential location but that there were others that could be considered.
"We're going to be looking at all locations and there's a number of factors that come into play, access to skills, land, access to energy, the speed at which we can get it done, and that's part of the work we are doing now," she said.
"[Port Kembla] is one of the locations that we're looking at, but we've got to do the work in prefeasibility to understand what is the best location."
Member for Whitlam and assistant treasurer Stephen Jones said the government would do everything it can to ensure that iron making remained in Port Kembla.
"We're committed to working with BlueScope to ensure we have a future for the steel industry, and of course we will do everything we can to ensure that it is here in Port Kembla," he said.
"We will be working with BlueScope and their partners and batting for the Illawarra to be the centre of this new development."
What about the blast furnace reline?
The announcement comes just over a week after the federal government announced $130 million for BlueScope's blast furnace reline project. Ultimately, if the electric smelting furnace project is successful, it would replace the blast furnace, Ms Archibald said.
"The reline buys us time, so the current blast furnace campaign ends in 2026 and we simply won't be able to replace that. The earliest we can have this pilot commissioned is 2027," she said.
"The reline is a bridge to the future, it doesn't lock us into 20 years of blast furnace steelmaking, it gives us the ability to pivot at the right point in time."
When and where that pivot would occur largely rested on access to the fuel needed for green steel making, first natural gas, which would enable a 60 per cent reduction in emissions, and then green hydrogen which would lead to close to zero emissions steelmaking.
"Ultimately what we need is a green hydrogen industry in this country," Ms Archibald said. "What we're also going to need in the interim is access to gas. Competitive natural gas is an important part of this process."
While the total amount of gas and hydrogen is not yet known, the east coast gas market faces a shortfall from the late 2020s while prospective hydrogen projects are in their infancy.
Western Australia, which has previously had abundant supplies of gas, is also looking at shortages in the 2030s, but has large, untapped gas fields off its north western coast coast, where Rio Tinto and BHP mine their iron ore.
Critical to the success of the project, Ms Archibald emphasised, was "effective government policy" a point Mr Jones and Cunningham MP Alison Byrnes standing next to Ms Archibald, would have heard loud and clear.
"The common thread that runs through all of this is the importance of effective government policy, both at the federal and state level," Ms Archibald said. "I'd like to thank the federal and the state governments for the high level of constructive engagement that's been demonstrated."