Economically, of course, their argument makes sense. But due to a variety of real-world factors–existing infrastructure for using the two fuels, and the relative growth in the supplies of oil and gas, for example–parity has still not come to pass. In fact, thanks to the rapidly growing number of productive natural gas wells in the U.S., natural gas prices have fallen more than 20% since the beginning of 2011.

Now, that doesn’t invalidate the economic argument for oil and gas price parity. And in the eyes of parity believers, the slide in natural gas prices has only made investments in the sector better deals. The United States Natural Gas Fund (UNG), for example, is down 33% from the beginning of the year. If you think natural gas prices have to go up eventually, it looks like a pretty good bargain right here.

Of course, you may have to wait quite some time for your prediction to come true, as investors who bought into the fund a year or more ago have already discovered.

Our most recent Dividend Digest spotlight stock was also a natural gas play for patient investors. Encana Corp. (ECA), a Canadian company that is listed on the New York Stock Exchange as well as in Toronto, is one of the leading producers of natural gas. In fact, its production lags behind only ExxonMobil’s (XOM). While the stock’s chart is both lousy and boring, ECA was recommended by two of our most well respected contributors at the same time, earning it Spotlight Stock credibility. The first, Nathan Slaughter, editor of StreetAuthority’s Scarcity & Real Wealth, wrote in his October 31 letter:

“Just about every energy producer sells both oil and gas. They each favor one over the other. And most have been tilting toward oil over the past couple years. But Encana Corp. makes no bones about being a natural gas specialist and is an outspoken industry advocate. Natural gas accounts for fully 96% of the company’s production mix (versus 4% for oil). … That skewed weighting puts Encana at a disadvantage in the current pricing environment. But if you’re looking for a well-managed pure play that is perhaps the most leveraged to rising natural gas, this is it.

“The Canadian company has secured 11.7 million acres to explore and develop. Much of that land lies north of the border in the Bighorn, Cutbank Ridge and Horn River gas basins in Alberta and British Columbia. But the firm also has a major presence in some of the top U.S. plays, most notably the Haynesville Shale in Louisiana and East Texas. Encana has acquired nearly 430,000 acres in the Haynesville Shale, which overtook North Texas’s Barnett Shale last year as the nation’s top producer with production rates now topping 5.5 billion cubic feet (Bcf) per day. The company was an early mover in the play, in keeping with its strategy of quietly beating other rivals to the punch and scooping up land before hype drives up lease costs and royalty rates. Encana’s latest target is Michigan’s Collingwood Shale, which underlies the Utica Shale in spots. The company has recently amassed 250,000 acres in this region for just $150 per acre, mere pennies. The value of this shrewd move is just now becoming obvious. According to Morningstar, recent Collingwood auctions have been closing as high as $5,500 per acre. With dominant positions in low-cost supply basins throughout North America, Encana has built up a massive base of 14.3 trillion cubic feet (Tcf) in proved gas reserves–23 Tcf if you include reserves characterized as probable. … The company can easily accelerate production growth if it wants to. But there’s no sense in rushing to get gas out of the ground today for less than $4 per Mcf [million cubic feet]–not when you can wait and sell it tomorrow for $6 per Mcf or more. So management is targeting slow but steady 5% to 7% annual growth for the time being.

“In the meantime, profits aren’t exactly suffering. Last quarter, the company generated $1.2 billion ($1.57 per share) in cash flow, amply covering the $0.20 per share dividend. And that’s with rock-bottom prices. Imagine the bottom line potential when those 3.5 Bcf per day are being sold at more favorable prices. For now, Encana isn’t stuck just taking what the market will give. Management has locked up more than half of its 2012 production (2.0 Bcf/day) at an average NYMEX (New York Mercantile Exchange) price of $5.80 per Mcf. That’s a hefty 48% premium to the going rate.

“Looking ahead, Encana also has several additional catalysts on the horizon. First, the company just pocketed $800 million with the sale of a gas plant and other midstream assets, money that will be deployed into more profitable upstream projects. On that front, management is plowing $1 billion into liquids-rich plays from Mississippi to Colorado–and daily production of higher-priced oil and NGLs [natural gas liquids] is expected to double from 25,000 barrels to 55,000 barrels over the next three years. Elsewhere, Encana has a 30% ownership stake in the Kitimat LNG facility, which recently received an export permit from Canada’s National Energy Board. This is one of just a small handful of LNG export hubs in North America, and the facility will be equipped to ship 1.4 Bcf of gas per day to Pacific Rim customers. Finally, Encana is also an emerging leader in natural gas transportation fuels. … If natural gas prices turn higher, Encana will be among the biggest winners. The company has a high-quality asset base and a 50-year inventory of low-cost drilling sites to juice future production and earnings. As an added bonus, the shares offer a nice 3.6% dividend yield, roughly double their peer group average.”

The other recommendation came courtesy of Patrick McKeough, editor of The Successful Investor, who recommended the Canadian shares. In his November issue, he wrote:

“Encana is down 29% since the start of 2011. The company is partly a victim of its own success. … New technologies that Encana helped develop have cut the cost of extracting shale gas, which has let other companies expand their own shale gas production. This has greatly added to the supply of natural gas, and pushed down gas prices. However, like most commodities, gas prices are inherently volatile. In particular, one cold winter could quickly push up prices.

“Longer-term, the outlook for gas remains bright. A growing gap between gas and oil prices could prompt more transportation companies to convert more of their trucks and trains to run on natural gas. Moreover, plans to ship liquefied natural gas from British Columbia to Asia should spur demand. Encana’s shares trade at a high 49.1 times the $0.42 U.S. a share the company will probably earn in 2011. However, they trade at a more reasonable 3.9 times its projected cash flow of $5.34 U.S. a share. … Encana is a buy.”

For patient investors who believe in the inevitability of gas and oil price parity, Encana is the place to be. If you want to make a quick buck though, stay away from this one.

Less-patient investors don’t have to be left out in the cold, either. There are a few natural gas plays for which depressed prices are actually a boon.

One of these is Cheniere Energy Partners LP (CQP), a master limited partnership (MLP) with a whopping 10% yield. Cheniere owns most of a liquid natural gas (LNG) terminal in Louisiana called Sabine Pass. The terminal is currently used to unload LNG from ships and turn it back into a gas, after which it can be transported to end markets by pipeline. However, Cheniere is in the process of converting Sabine Pass into a two-way terminal, so it can export natural gas as well: liquefying it and loading it on to ships bound for foreign ports. So while Cheiere’s current business already leaves it with minimal exposure to low natural gas prices, the expansion will actually make Cheniere a prime beneficiary of low prices, which incentivize U.S. producers to export their cheap gas to places where it isn’t so cheap.

Cheniere was recommended in the latest Dividend Digest by Gregory Spear, editor of The Spear Report. In his October 28 issue, he focused on Cheniere’s plans to begin exporting LNG:

“This past Wednesday, Sabine Pass Liquefaction, a subsidiary of Cheniere Energy Partners, signed an $8 billion deal with BG Group, a large integrated natural gas conglomerate headquartered in the U.K. The 20-year agreement commits BG Group to purchase 3.5 million tons per annum (mtpa) of liquefied natural gas from CQP’s Sabine Pass terminal facility in Louisiana. Cheniere will super-cool the gas and BG will ship it to Asia and Europe. This one deal is expected to reap more than $8 billion for CQP over the life of the contract ($400-$500 million/year).

“Sabine Pass is an 850-acre LNG transportation facility with a 40-foot ship [deep] canal and five tanks capable of storing nearly 17 billion c/f of natural gas. The facility is 90% owned by Cheniere. Construction of the liquefaction facilities, which will cost about $6 billion, is expected to commence next year and actual exports are slated to begin in 2015.

“Due to new advances in horizontal drilling, natural gas is now extremely abundant in the U.S. Based on current demand, we have nearly 100 years’ worth of the clean fuel, which is why prices remain depressed (about $4 per million BTU). Meanwhile, natural gas prices in Asia have doubled over the past six months and sit north of $15 per million BTU. The economics make the development of LNG terminals in the U.S. a no-brainer. We therefore expect Cheniere to undertake more deals with other global players and at significantly higher prices. … Shares of the non-dividend paying arm of Cheniere (LNG) soared more than 60% on the BG news, but CQP has remained under its 200-day moving average. Meanwhile, the stock pays a hefty dividend, so investors get paid handsomely to wait.”

Of course, you may have noticed that Cheniere won’t be able to begin exporting LNG until 2015. If the parity believers are right, natural gas prices will already have risen significantly by then.

Today’s bottom line, then, would seem to be that investing based on expected long-term trends in commodity prices is no easy feat. Luckily, both of these companies will pay you a nice dividend while you wait to see what actually happens.

For more details on ECA and CQP, as well as other top stocks featured in Dick Davis Dividend Digest, click here.

It’s only been in the past few years that technological advances in the oil industry have made extracting crude oil from the Bakken realistic. These advances–in 3-D imaging of rock formations, fracturing technologies, proppant (to prop open the rock to expedite oil flow) and, most importantly, in the ability to drill horizontally for great distances deep underground–mean the Bakken is now responsible for 5% of U.S. oil production. The 113 million barrels produced last year isn’t much in the grand scheme of the United States’ total oil demand of 5.25 billion barrels a year, but it’s still a potent resource.

And the Bakken has the potential to produce much, much more. As technology improves and understanding of the Bakken evolves, so does the belief in how much oil sits waiting to be pumped. The U.S. federal government just dramatically raised its estimate to 4.3 billion recoverable barrels in the Bakken–that’s a significant amount of oil, and makes the Bakken one of the largest oil fields discovered in recent decades. But it looks like the federal government estimate could actually be very low: North Dakota’s state resource agency issued a meta-study–a study of studies–which found that over the past three decades, various geologists have estimated far more oil may be in the ground in the Bakken, from 132 billion barrels to 413 billion barrels!

Understand, these are hotly disputed numbers in the industry. But if true, the Bakken would all but solve the problematic America-OPEC dynamic by providing the U.S. nearly 80 decades of oil supply at current consumption rates. Saudi Arabia, by comparison, has about 270 billion barrels of oil in its reserves. Even if oil prices experience a pullback, it won’t appreciably alter an inevitable fact: the Bakken is destined for a huge amount of investment.

A controversial U.S. government geologist, Leigh Price, posited the fantastical estimate that the Bakken holds 413 billion barrels of oil. Unfortunately, Price died of a heart attack in 2000, without ever publishing his numbers. In the years since, another scientist saw Price’s data and concluded Price may be more right than wrong (although even Price didn’t speculate that more than half of that 413 billion barrels would be recoverable).

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An early believer in Price’s data–and my stock pick for this issue–is Brigham Exploration (BEXP). Brigham was a small wildcatting firm that began buying up leases in the Williston Basin in 2005 after it analyzed Price’s research, which had been circulating among oil circles since his death. Brigham already held 302,000 acres by the time the U.S. Geological Survey began revising its older and much smaller estimates of the region’s oil reserves. Now the company has 378,100 acres in the region, primarily in North Dakota and Montana, placing it eighth for acreage holdings in the Williston behind oil majors including ExxonMobil (XOM), ConocoPhillips (COP) and Hess (HES).

So why not pick one of those companies instead? Because Brigham has been outperforming competitors in generating stronger-producing wells!

Over the past five quarters, the company’s average well outproduced the average of 18 competitors in the area by 120%. Over that time only two competitors have had quarters where their average well outproduced Brigham’s average. One of those, Denbury Resources (DNR), only drilled one well versus three by Brigham in the comparable period (the first quarter of 2011). The other, Newfield Exploration (NFX), drilled just two when Brigham drilled eight, in the first quarter of 2010. That production efficiency makes the company’s motto, No Oil Left Behind, seem appropriate.

At 31 a share, Brigham is trading at a reasonable 21 times Wall Street consensus expected 2011 earnings of $1.44 a share (and that is well below what I project the company will generate in 2011). I told subscribers to Cabot Global Energy Investor, the newsletter of which I am chief analyst and editor, about Brigham in early June and we added shares under 28. Subscribers are up 12% on the position today, but at 31, BEXP still looks like a great buy, even if the Bakken won’t enable us to leave OPEC behind us for good.

You could buy BEXP and hope for the best, or you could check out Cabot Global Energy Investor to see Brendan’s latest recommendations on this and other top picks in the energy sector. Learn more now!

But there is one car that catches my eye more than any other. About a block away, neighbors have a compressed natural gas-fueled Honda Civic. I know it’s a natural gas version (the Civic GX) because it’s emblazoned with NGV lettering on the side and when I walk past their house I see the refueling pump outside their garage. Because I live in a town that is actually an island connected by a causeway to the mainland and that does not have a gas station of its own, I find myself envying the fact that my neighbors can fill up their car from a pump that receives its gas from the utility’s natural gas feeding into the house. But I don’t relish the thought of not being able to fill up the tank at any old gas station along the road on a longer trip.

There are places to find CNG, but they are few and far between, which is one reason Honda doesn’t sell many of the GX, reportedly producing just a few dozen each month. Still, it’s not terribly complicated to convert a car from gasoline to natural gas. A few companies make kits that run a couple of thousand dollars and don’t require a great deal of alteration to your engine. In a few countries, such as Italy, some months have seen as much as 25% of auto sales go to vehicles fitted by manufacturers such as Ford and Fiat to run on natural gas.

It’s for industrial purposes, though, that natural gas is gaining a foothold. This is largely because of air quality concerns at high-pollution areas, like seaports and airports. To address those concerns, equipment such as forklifts, buses and even 18-wheelers are being run on liquefied or compressed natural gas. The reason is that natural gas burns cleaner than other fossil fuels, which means engines running on natural gas exceed EPA emissions standards fairly easily. It’s also wildly abundant in the United States, thanks to new technologies and more accurate estimates of sizeable deposits sitting in a vast region stretching from New York to Michigan to Texas.

In fact, the International Energy Agency, which follows world energy demand, issued a report earlier this month predicting that a “golden age of gas” (and the IEA means natural gas, since outside North America what we call gas is known as petrol) could be coming, thanks to its wide availability in non-OPEC nations, its tendency to burn cleaner and the increasing pressures on oil prices and much of the world’s distaste for nuclear power since the Japanese disaster. Here’s what the IEA had to say:

“Global uncertainties afflicting the energy sector can be seen as opportunities for natural gas. When replacing other fossil fuels, natural gas can lead to lower emissions of greenhouse gases and local pollutants. It can help to diversify energy supply, and so improve energy security. It can provide the flexibility and back-up capacity needed as more variable capacity comes on-line in power generation. Gas is a particularly attractive fuel for regions, such as China, India and the Middle East, which are urbanising and seeking to satisfy rapid growth in energy demand. These are the very regions that will largely determine the extent to which gas use expands over the next quarter of a century.”

In fact, China’s demand for natural gas is expected to rise from the equivalent of Germany’s demand today to the demand level of the whole European Union by 2035. In the U.S., the majority of the many hundreds of power plants expected to be built in the next 15 years will be natural gas, according to the Department of Energy. Japan’s energy mix will undoubtedly include more natural gas now that the tsunami has effectively destroyed the nuclear industry there. These trends and more are reasons why the IEA sees natural gas demand growing over 50% in the next 15 years to account for as much as 25% of the world’s total energy mix.

We’ve been discussing natural gas investments in Cabot Global Energy Investor, the stock investing newsletter for which I am analyst and editor. There are a myriad of ways to play natural gas, depending on your interests. With the market on uncertain footing at the moment, we’re being very selective in adding to the newsletter’s portfolio. What we recommend buying now is information reserved only for subscribers, but I do have a list of natural gas-related stocks that are worth keeping an eye on, researching some more and perhaps adding to your watch list to buy when the time is right.

Fuel Systems Solutions (FSYS) is an American company that makes the kits that convert gasoline engines to run on compressed natural gas (CNG) or propane (LPG) and even offers systems that allow vehicles to switch easily between gasoline and CNG and LPG. Its subsidiaries supply both the aftermarket and automaker assembly teams, with a very strong presence in Italy, which has a robust CNG automobile market, as well as in California, where it supplies equipment to run industrial equipment from forklifts to generators to construction vehicles. Since 2000, the number of CNG/LPG vehicles has grown 29% annually, so it’s been a good market to be in. Last year, Fuel Systems also acquired Phill, the company that makes the home CNG gas pump, which many Honda Civic GX owners, including my neighbors, use to fill up with.

Westport Innovations (WPRT) is a Canadian company that supplies kits to convert engines to run on natural gas. Unlike Fuel Systems, which has a strong automobile presence, Westport is concentrated in the market for tractor trailers. Generally, I’ve felt Fuel Systems management has done a better job executing in recent years, but Westport is worth exploring too. The main reason is the company’s alliances with truck engine makers including Cummings, Peterbilt, Volvo, Hyundai and others. Natural gas is preferable to diesel because strict emissions regulations put in place by the EPA mean costly modifications to diesel engines need to occur now to be allowed on the highways. Natural gas engines already fall well within the emissions parameters. Westport also aims to expand into heavy duty construction and mining equipment.

Clean Energy Fuels (CLNE) develops and operates natural gas filling stations. You’ve probably heard of it, oil billionaire T. Boone Pickens, who has been tirelessly working to get natural gas incentives passed in Congress since 2009, controls it. The company focuses on opening stations in strategic locations where there is a critical mass of natural gas vehicles that need fueling. That means it works with seaports and airports to encourage conversions and opens filling stations to service those areas. To date, the company has 238 stations in the U.S. and Canada. With gas well over $3 a gallon, the math is compelling: In the heart of Los Angeles, a gallon of gas equivalent of CNG costs just $2.75, a full dollar less than a gallon of gasoline.

With natural resources, it’s always a good idea to keep an eye on the companies that pull the commodity out of the ground. One to consider is Devon Energy (DVN), a leading independent energy company that operates primarily in North America, pulling natural gas and oil out of shale formations. About two thirds of its production is natural gas, the balance being oil and related products. Proven reserves have been growing, to 2.9 billion barrels of oil equivalents, and the company has a 99% success rate on the thousand or so wells it drills annually. Unlike the other companies listed here, Devon is a large cap ($35 billion, ahead of FedEx and Lowe’s) and management does an excellent job focusing on creating shareholder value with share buy-backs and modest dividend payments.

With energy demand booming around the world with emerging economies growing fast, I don’t think you can have an effective stock portfolio without a good portion of holdings in new energy technologies as well as fossil-fuel based companies, including natural gas. Here’s to a profitable second half of 2011!

P.S. You could buy the energy stocks mentioned above and hope for the best, or you could check out Cabot Global Energy Investor to see Brendan’s latest recommendations on the top picks in this sector. And because Brendan employs Cabot’s proprietary, time-tested market timing indicators, he ensures that you’re always on the right side of the market’s trend. The time to build your watch list is now, before the market rallies and the next phase of the bull market begins. Fill it with top stocks in the energy sector and you’ll put your portfolio on the path to success. Learn more now.

A financial advisor I’m friendly with told me an interesting fact I hadn’t heard before: The average American household buys 1,100 gallons of gasoline a year. That’s a lot–and with the national average price for gas last week at $3.906, that’s $4,297 annually that we’ll spend on filling up our cars. Compared to the price one year ago, it’s $1,147 more a year out of pocket. That’s a big deal to most people and it also means huge profits for the companies that drill oil, transport it, refine it into gasoline and sell it.

That same day, I read a report on power consumption related to the Internet: Every Google search consumes energy equivalent to driving a car three inches. Whoa! How could something as seemingly low-impact as searching on your Web browser exert that much effect? (And if you think it’s not much, consider the number of searches that you alone perform all day long.) Think of the computer servers, transmission wires and power plants working to store and transmit all that data.

The third fact is that if you convert calories to equivalent fossil fuel measures, it takes twice as much energy to produce the number of calories cow’s milk returns to a person, five times as much as a chicken egg and over 25 times the energy from beef. Those measures include the fuel used to run farms and tractors, planting the crops the animals eat and processing all that food for human consumption.

The startling realization I came to is this: Energy truly is the driving force behind everything. And we will need a tremendous amount of energy in the future.

Gasoline demand is rising and will only rise faster. China, which a decade ago had a few million cars in total, is now buying 15 million vehicles a year–roughly the same number as Americans. By the end of this decade, the Chinese government expects over 200 million cars to be on its roads! That’s almost like adding a whole new United States (256 million cars) to the gasoline-buying world in two decades.

Consider too that only 28% of the world’s population has Internet access, and that’s triple the level it was in 2000. More Internet access needs more energy for Web searches and server farms.

What’s more, the United Nations foresees the world’s population growing nearly 50% by 2075, to nine billion people. These people will need food, and as people emerge from the poverty line, they eat more energy-intensive meat.

All of these interrelated trends inexorably lead to one conclusion: the route to making big profits in the stock market is to pursue those companies that will discover, extract, and deliver energy. Energy made the great fortunes of the 20th century and it will make the great fortunes of the 21st century, too.

That is why I’m truly excited to introduce today the Cabot Global Energy Investor newsletter.  As editor, I promise that we’ll pinpoint profitable investments within the entire gamut of the energy sector: oil, coal, nuclear, natural gas, biofuels, wind power, innovative energy efficiency advances — you name it. If it’s related to energy and it promises tremendous profits in the stock market, we’ll cover it!

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As many of you probably know, for the past three years I’ve been editor of Cabot Green Investor, primarily covering the alternative energy field. I’m intensely proud of the work we did on behalf of subscribers. In those three years we were the only profitable vehicle in the alternative energy space, returning 24% in 2010 (handily beating the broad stock market) and posting an overall profit since the start of 2008. No other investment option–the stock market, green mutual funds, alternative energy exchange-traded funds, other alternative energy newsletters–would have made you money over that time period. None! And we’ve had big winners lately: Subscribers have nabbed profits of over 200% on Polypore (PPO) since June 2010; 30% on Molycorp (MCP) in just six weeks; and over 44% on MasTec (MTZ), among others.

Each of those investments is related to energy. Polypore makes high-tech membranes for lithium ion batteries for electric and hybrid cars; Molycorp mines rare earth elements necessary for energy efficiency and alternative energy applications; and MasTec builds wind turbine infrastructure and natural gas pipelines. And plenty more double- and triple-digit winners we’ve recommended in the Green portfolio since 2008 have been energy related, too.

So why shift gears and launch Cabot Global Energy Investor with that track record? As I looked at other exciting companies in the green energy space, I found a distinct “old” energy handprint. For instance, Codexis (CDXS), which makes catalysts for ethanol and biodiesel production, was started by Shell Oil, which remains a significant shareholder; Oilman T. Boone Pickens has invested heavily in natural gas fueling station Clean Energy Fuels (CLNE); and BP is one of the largest owners of wind farms in the United States. There are dozens, if not hundreds, of similar examples. The distinction between “alternative” and “traditional” energy is blurring. It’s all energy and if it powers our cars, lights our homes, and keeps enabling millions around the world to rise out of poverty to a better life, what does the category matter?

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As I’m sure you do, I realize that the prices of commodities, especially for oil, significantly affect the economy and the markets. When I covered the energy markets for Dow Jones before I became a stock-picker, I saw how trends in commodities trickled down into equities in ways many pundits still don’t understand today. While a writer for Forbes, I talked strategy with some of the world’s most successful investors and learned how macro-economic trends are the tides that help you sail to superior profits. And as analyst and editor with Cabot, employing our time-tested method of fundamental and technical analysis, I understand that successful stock market investing needs to be managed to take profits, avoid losses and post long-term gains.

Today, it’s clear that energy will become even more valuable in the future. The U.S., China, Korea, Japan and other nations are striving for energy independence, which in turn drives energy efficiency and new energy sources. At the same time, new energy discoveries in the U.S., Canada and elsewhere are transforming plenty of little known companies in traditional oil and gas sectors into big winners.

If you’re interested in investing profitably in the booming energy sector, I invite you to subscribe to Cabot Global Energy Investor today and join me in powering your portfolio.