Company disclosures (3)
Climate resilience and scenario analysis
Scenario analysis of the Group's property exposures
Scenario analysis of the Group's property exposures indicates that under the RCP4.5 pathway:
• Short-term (by 2030): The increase in the Group's catastrophe AAL before reinsurance due to climate change across key peril regions is not currently expected to be significant by 2030. This increase is not expected to result in claims costs that materially exceed the Group's catastrophe allowance on an annualised basis and is considered to be within the range of variability already reflected in the Group's pricing, underwriting and reinsurance strategies. This projection does not incorporate the potential effects of planned mitigation activities or changes in business mix, including those arising from portfolio optimisation strategies and growth initiatives which may evolve with market conditions.
• Long-term: Over the long term, the financial effects of physical climate risks may be more material and could require changes to the Group's underwriting and reinsurance strategies.
Climate risk assessment
These risks are continually assessed through catastrophe modelling and underwriting analysis, which inform the Group's underwriting and reinsurance strategy, as well as the calibration of the catastrophe allowance within the business plan.
Modelled outcomes uncertainty
As an indicator of relative exposure within the claims profile, the modelled aggregate net annual average loss (AAL) for climate-related perils for 2026 is $654 million and represents approximately 5% of the Group's 2026 plan net claims, noting that modelled outcomes are subject to significant uncertainty as outlined on page 53.
Climate Resilience and Scenario Analysis
Portfolio Resilience: The Santos portfolio is resilient across a range of decarbonisation scenarios. Santos has a Climate Transition Action Plan (CTAP) that will continue to evolve with time.
Scenario Analysis Limitations: This report discusses scenario analysis. There are inherent limitations with scenario analysis. Scenarios do not constitute definitive outcomes and it is difficult to predict which, if any, of the scenarios discussed in this report might eventuate. Scenarios are based on assumptions, which may or may not be, or prove to be, correct, and may or may not eventuate. Scenarios may be impacted by additional factors to the assumptions disclosed.
Market Context Analysis: Santos considers various market scenarios in strategy development:
Energy Demand Scenarios:
- LNG demand forecast to grow across Asia-Pacific, led by China in the early 2030s and emerging economies in South and Southeast Asia into the 2040s
- Oil demand remains resilient through to the end of this decade, supported by aviation, petrochemicals and heavy transport
- Structural demand for hydrocarbons continues despite renewable capacity deployment
Resilience Factors:
- Diversified portfolio across LNG, oil and gas production
- Flexible contracting and portfolio optimisation capabilities
- Proximity to key growth markets
- Strong cash flow resilience across commodity price cycles
- Disciplined low-cost operating model providing competitiveness across scenarios
Business resilience to climate-related risks and opportunities
Climate scenario analysis plays an important role in identifying and assessing our material climate risks and opportunities, as well as the resilience of our business model and strategy. Our scenario analysis assesses the broader businesses operations, with a particular focus on our refinery operations in Geelong, Victoria.
Our scenario analysis incorporates scenarios based on the projections of various external data sources. Transitional risks and opportunities were assessed relying on the scenarios of the International Energy Agency (IEA) and data from the Australian Energy Market Operator (AEMO) to provide Australian specific information for the gas and electricity sectors. Physical climate risks were assessed based on scenarios from the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report on Climate Change (2021). These sources informed our scenarios, representing a range of potential global outlooks and energy transition pathways.
We initially conducted a climate risk and opportunity scenario assessment in 2024, evaluating results across three timeframes: short term (2030), medium term (2040) and long term (2050). During 2025 we reviewed this modelling and resilience assessment to ensure it remained relevant and aligned with the latest insights on climate-related impacts across the Group's operations, business model, and strategy.
Scenario Framework
The following scenarios form the basis of our assessment in 2025:
| Low Warming Scenario | High Warming Scenario | |
|---|---|---|
| Transition climate scenarios (IEA & AEMO) | Ambitious scenarios that limit global warming to 1.5ºC above pre-industrial levels. Consistent with Australia's Climate Change Act (2022). | Scenarios most aligned with current global progress in emissions reduction, assuming no changes to current policy settings. Associated with a projected temperature increase of more than 2.5ºC. |
| Physical climate scenarios (IPCC) | Shared Socioeconomic Pathway (SSP) 1-2.6: A low emissions scenario that is likely to keep global warming below 2ºC relative to pre-industrial levels. Aligned to Paris Agreement commitments. Would substantially reduce the projected increases in extreme weather events. | SSP5-8.5: A high emissions scenario, assuming no additional climate policy under which emissions almost double by 2050. Changes in the climate system intensify, with increasing heat extremes, severe drought, extreme rainfall, flooding and fire weather. |
Time Horizons
Our scenario analysis was undertaken across three-time frames. The rate of change across the different fuel types is also a major consideration. Passenger vehicles, which predominantly affect gasoline demand, are expected to transition at a different pace than transport vehicles that utilise diesel and jet fuels.
Short term = Beyond 2025 and up to 2030: Considers short‑term external developments, including emerging government policies, uptake of emerging technologies, and shifts in customer demand. Takes into account the Group's budget and operational planning through to 2030.
Medium Term = Beyond 2030 and up to 2040: Considers more significant structural changes in energy systems, investment patterns, and regulatory frameworks. While the Group may be able to respond to these changes, doing so is likely to involve substantial capital expenditure. Policy settings may also significantly change over this time period, requiring ongoing flexibility in decision‑making.
Long Term = Beyond 2040 and up to 2050: Considers possible long-term structural developments and end state pathways associated with decarbonisation and broader transitions across our economy and industries.
Resilience Assessment Results
Short term resilience Our analysis indicates that the Group's operations demonstrate resilience under both scenarios. Increased demand for LCLFs offsets the risk of declining demand for hydrocarbon fuel products under both low and high warming scenarios, as LCLF functions as a transition fuel rather than creating new demand or additional sales growth. The NVES is not expected to have a material impact on the Group's position under either scenario, as the expected age profile of the Australian passenger fleet limits its influence on short-term demand for hydrocarbon fuel products. Across both low warming and high warming scenarios, the Group is expected to be exposed to some cost of compliance in relation to government climate policy.
For the purposes of the scenario analysis we projected the future emissions profile at the refinery based on assumed feedstock volume and quality, over a five year period. We also considered other variables, including the potential impact of direct abatement investment, the future application of TEBA and a range of forecast ACCU prices.
We have assumed that under the low warming we achieve maximum direct abatement reduction of emissions at the refinery, and consider a range potential ACCU prices and TEBA eligibility outcomes. Based on these hypothetical assumptions, the associated short‑term compliance costs to the Group under the low warming scenario are estimated to range from $57.4 million to $105.2 million cumulatively to 2030.
We have assumed that under the high warming scenario, no further direct abatement is achieved at the refinery. Applying the same range of potential ACCU prices and TEBA eligibility outcomes, the associated short‑term compliance costs under the high warming scenario are estimated to range from $63.1 million to $112.8 million cumulatively to 2030.
Medium and Long term resilience Our analysis suggests that the Group's operations demonstrate medium-term resilience under both scenarios. However, this exposure is expected to increase over time, driven by anticipated regulatory expansion, technological developments and changes in consumer preferences.
Over the medium and long term horizons, impacts under both low and high warming scenarios did not result in any immediate re-rating of existing risk ratings established through our broader risk management processes.
Our climate scenario analysis allows us to assess our business strategy across a range of scenarios, while recognising the uncertainty of outcomes in this area.