The transition of energy sources from fossil fuels to renewables is one of the big investment themes of the current generation.
In a recent memo to clients, Wilsons analysts recognised the massive amount of capital required for this momentous change.
"Getting to net-zero over the next three decades requires approximately US$130 trillion in clean energy investment from now until 2050, according to the International Renewable Energy Agency," said Wilsons equity strategist Rob Crookston.
"The transition involves more energy storage and a higher uptake of electric vehicles, both of which will create a higher demand for batteries, specifically lithium-ion batteries."
So when most people think of ASX shares to invest in this theme, they think of green energy producers and lithium miners.
But Wilsons implored investors to think outside the square.
'An essential commodity in the coming decades'
Wilsons analysts reminded investors that lowering carbon emissions is "a complex long-term global issue".
"The outlook for turning emissions around is likely to be a mix of energies, not one solution."
Therefore natural gas, according to Wilsons analysts, will be an essential commodity in the coming decades as the world transitions to renewables.
"Gas burns more efficiently than coal or oil and emits significantly fewer greenhouse gases than other fossil fuels while being a reliable source of energy," said Crookston.
"According to the International Energy Agency (IEA), natural gas will have a greater share of the global energy mix in the future as oil and coal's relative share declines and renewables increase."
Even though it is still a fossil fuel, natural gas will "play a key role" as a baseload power source while solar and wind generators — and energy storage technology — improve their reliability.
Crookston cited IEA projections that natural gas will end up replacing coal as the world's second most critical energy source by the mid-2030s.
"Typically, global infrastructure is better prepared to transition to gas than renewables at present, making it more cost-effective for countries in the short-term," he said.
"Thus, it can play a crucial role in supporting the transition to renewable energy."
Gas prices will remain elevated
So which ASX shares is the Wilsons team favouring to play on the gas thematic?
In their focus portfolio, Crookston mentioned that the key exposures are through Santos Ltd (ASX: STO) and Woodside Energy Group Ltd (ASX: WDS).
"We think the current demand-supply dynamics are favourable for oil and gas prices over the medium-term, especially in an environment where demand can remain steady through the transition."
He forecasts that, at current spot prices, Woodside has a 71% upside in earnings per share to consensus forecasts for the 2024 financial year. Santos has a 56% premium for the same period.
The Santos share price is up 13.5% year to date, while paying out a 2.6% dividend yield. Woodside shares are more than 40% higher than where they started 2022, while providing a whopping 9.6% yield.
