Net Zero Megatrend
Insync Fund Managers
We view Energy Transition to be among the most important megatrends affecting the investment landscape. Hydrogen is viewed as a key component of the world's quest to reach 'net zero' and avoid the worst of climate change. Hydrogen demand projections call for a 10-20x increase vs current volumes. This requires trillions of dollars of investment. Green hydrogen is produced with renewable power such as wind and solar, enabling the full life cycle of hydrogen production and consumption to be carbon free.
It is one thing to identify a great megatrend but it's another thing altogether to then match this with one or more quality companies that also possess sustainable earnings growth and a superior ROIC. There are many unprofitable companies participating in the Energy Transition megatrend but we consider these to be of a more speculative nature.
Our research identified industrial gas companies to be strongly positioned as they are very profitable businesses and have unique domain expertise in hydrogen and CCUS technology (Carbon Capture, Usage and Storage). The Industrial Gas market has undergone significant consolidation in the last 20 years, comprising just 3 global majors: Linde, Air Liquide and Air Products. As a result of the oligopoly style industry structure, they have delivered steady sustainable volume growth over time with consistent pricing gains. Population, GDP and industrialization of middle income markets provide a solid basis for future growth.
Whilst being an attractive energy replacement for many key industrial needs, hydrogen can be difficult to handle safely and cost-effectively. Industrial gas companies possess significant domain and IP expertise in hydrogen and are heavily involved in both traditional and Energy Transition uses of hydrogen. We believe they hold prime position as key project integrators in the build out of green hydrogen infrastructure, providing decades of growth investment potential.
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