Company disclosures (3)
Anticipated impacts
Short-term impacts
Short-term claims volatility is expected to continue to be influenced by natural variability in weather and catastrophe activity, in addition to the effects of climate change. In the short term, the potential impacts of physical risks are incorporated into the Group's business planning process.
Medium to long-term scenario analysis
Scenario analysis of the Group's property exposures indicates that under the RCP4.5 pathway:
• 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.
Anticipated Financial Effects of Climate-Related Risks and Opportunities
Growth Targets and Financial Implications:
Carbon Storage Growth Target: By 2040, build and operate a commercial carbon storage business, safely and permanently storing at least 13.65 million tonnes of third-party CO2 per annum. This is a target not a forecast and is a growth target for gross storage from Santos operated carbon storage projects. The target is ambitious and subject to substantial engineering, finance, commercial and policy work to establish enabling frameworks with customers, governments, regulators and other stakeholders.
Revenue Opportunities:
- Carbon Credits: Potential ongoing revenue from ACCU generation and carbon credit sales
- Third-Party CCS Services: Commercial carbon management services business development
- Low Carbon Fuels: New revenue streams from synthetic gas and other low carbon fuel development
Capital Allocation Framework: The CAF targets returns to shareholders of at least 60 per cent of all-in free cash flow once Barossa LNG and Pikka phase 1 are producing, while ensuring growth opportunities, decarbonisation projects and low-carbon fuel developments are advanced within a robust financial framework.
Market Positioning Benefits:
- Asian Growth Markets: Positioning for LNG demand growth in Asia-Pacific
- Energy Security: Benefits from increased focus on energy security and reliability
- Lower Carbon Premium: Potential premium pricing for lower carbon energy products
Investment Pipeline:
- Continued investment in CCS expansion projects
- Development of low carbon fuels capabilities
- Nature-based carbon projects providing environmental benefits and economic returns
Anticipated Financial Impact of Climate-Related Risks
Regulatory/Policy Risk - Safeguard Mechanism The Federal Government is scheduled to review the SGM in FY2026–27, creating uncertainty regarding potential changes to the scheme. The financial implications of the future SGM and how these compliance costs will impact the Group's income statement, balance sheet and cash flows in the future is currently unknown.
Any estimates for future SGM cost consider three major factors – the eligibility of the Group's TEBA status, the forecast increases to future ACCU prices, and the impact of any future direct abatement initiatives at the refinery. The level of measurement uncertainty involved in estimating the effects of these factors on our cost of SGM compliance is so high that the resulting quantitative information would not be useful. In addition, the cost to the Group of any future climate policy is unknown, and therefore currently unable to be quantified.
The risk of heightened climate-related regulatory requirements (whether under the SGM or other future policies) are expected to lead to increases in our compliance costs in the medium to long term, as well as potentially large capital expenditures to reduce emissions which may not be recoverable from the market.
In the medium to long term, the level of capital investment capable of generating positive returns is expected to decline.
Demand Transition Risk While the current financial impact of the decline in demand for fuel is not currently considered material, it is the risk of increasing fuel displacement in the medium to long term that is regarded as a potential material risk for the Group.
With the average age of passenger vehicles at over 11 years, it will take time for the combined effects of improved fuel efficiency and EVs to materially impact the gasoline pool. 2026 will be the first performance period for the New Vehicle Efficiency Standard (NVES). The Company will continue to monitor the implementation of, and compliance with, the NVES over time as part of our assessment of this risk.
While there remains a level of measurement uncertainty involved in quantifying the financial impacts of this risk in the medium to long term, our analysis suggests that these trends will have a material impact on the Group's revenue from hydrocarbon fuel sales, future product mix, infrastructure investment, and asset planning decisions over the medium to long term. The Federal Government's Net Zero Policy is expected to be the key driver of medium to long term decline in hydrocarbon fuel sales. While the policy ambition is clear, the specific pathways required to achieve the proposed emissions reductions remain uncertain.
The impact of the energy transition on the fuel pool remains complex, with different market segments evolving at different rates. While we track actual registered vehicle data, forecasting future fuel demand requires consideration of several interacting factors. These include the uptake of EVs, improvements in vehicle fuel efficiency, growth in large internal combustion engine (ICE) vehicle sales, increases in the average age of the vehicle fleet, and overall growth in the total number of vehicles in the market.
Declines in fuel demand from some segments are being offset by increases in others, and broader macro-economic conditions (including the strength of commercial and industrial activity) further influence demand for liquid fuels. In addition, uncertainty regarding future sales margins adds further complexity, as earnings outcomes could improve even in scenarios where demand is lower.
As a result of these uncertainties and the interdependencies between fuel demand and broader economic drivers, it is not currently possible to quantify a range that reliably supports the anticipated financial impacts of this transition risk.
Low Carbon Liquid Fuels Opportunity With our existing investments in the processing, distribution and sale of LCLFs, the Group is well positioned to benefit from this opportunity as supporting infrastructure continues to mature.
LCLFs are recognised in the Transport and Infrastructure Net Zero Roadmap as a low carbon alternative where electrification is not feasible. This is supported by further analysis by the Clean Energy Finance Corporation which suggests the electrification adoption curve will start to accelerate from 2040 onwards for the majority of diesel users. Opportunities in the medium term are expected to be driven by RD and SAF within our Commercial & Industrial business.
Future government policy settings and evolving customer demand will play a key role in shaping the growth trajectory of LCLFs. Given the current uncertainty in both areas, the potential future financial impact of this opportunity cannot yet be reliably quantified.
At this stage, we are unable to reliably estimate capital expenditure for anticipated investments in supply chains or LCLF manufacturing. These investments require a viable business case, which depends on clear, demonstrated customer demand and, in some cases, potential government funding where a commercially positive return is not otherwise achievable. Given the current uncertainty in market uptake, policy settings, and funding pathways, capital requirements cannot yet be quantified with reasonable accuracy.