ASX 200 energy shares were the clear winners in FY22. Prices for energy commodities and raw materials were sent to record highs amid a number of external catalysts.
In particular, Brent Crude oil nudged multi-year highs of US$123 per barrel back in March. It has been in sideways territory since.
Meanwhile, energy's darling child – natural gas – is buoyantly trading well above historical averages.
The European TTF Dutch gas contract has increased 375% year over year. UK gas is up 162%. Not to mention coal, which has gained 194% in 12 months.
More upside for ASX 200 energy shares in FY23?
Michael Cembalest is the chairman of market and investment strategy at JP Morgan. He recently released his annual commentary on the future of the energy market.
In it, Cembalest noted that while there's somewhat of a paradigm shift occurring in energy markets, beneath the surface, all might not be that different.
Cembalest notes fossil fuel's share of global primary energy is declining slightly faster than previously. This is partially due to "large investments in wind and solar power used for electricity generation".
"Even so … fossil fuel reliance across the developed and developing world is still high."
The International Energy Agency also projects that 66% of the world may be reliant on fossil fuels by 2050.
"[G]lobal gas and coal consumption in 2021 were already above pre-COVID levels, and global oil
consumption should surpass pre-COVID levels sometime next year," Cembalest added.
"Looking further out, some forecasts of oil demand in 2030 and 2040 are not that different from today."
That looks like bullish sentiment for the ASX 200 energy sector, that's for sure.
Fossil fuels fill the energy gap
Dr Phillip Hofflin of Lazard Asset Management echoes this sentiment.
Hofflin notes that modern renewable energy represents only 6% of the global supply. This leaves a large gap that fossil fuels currently fill.
"[W]hat attracted us to the sector … was really a combination of, firstly, the very low prices … and secondly, the fact that there was just no CAPEX around the world in energy," he told Livewire.
Hofflin likes energy giants Woodside Energy Group Ltd (ASX: WDS) and Whitehaven Coal Ltd (ASX: WHC).
However, many ASX 200 energy shares such as Santos Ltd (ASX: STO), Yancoal Australia Ltd (ASX: YAL), and Beach Energy Ltd (ASX: BPT) are also positioned to benefit from a strengthening energy market.
Bell Potter named Beach Energy a speculative buy in a recent note. The broker valued it at $2 per share.
The broker said:
BPT should continue to benefit from elevated crude prices in the short term, though operating leverage from its Western Flank asset will shrink as gas and LNG production from its growth projects ramp up over the next two years.
Shown below is a graph comparing the share price growth of several ASX 200 energy shares.
