My colleague Christian DeHaemer hit a bull's-eye earlier this morning.

While most investors are looking for a quick buck, few of them realize how valuable these opportunities can be over the long run.

And natural gas is no exception.

Today I'll give you two reasons why he's right.

The Bullish Case for Gas

The first reason will be more obvious to readers who have been following the natural gas story since 2006.

Believe me, the upcoming U.S. LNG exports destined to leave Gulf ports don't have us nearly as excited as what we plan to do with the fuel on our own turf does...

We've mentioned before how natural gas is single-handedly taking on coal to meet our electricity demand. According to the EIA, it has become even more pronounced.

Natural gas usage in U.S. power plants increased by 40% last March compared to the previous year. Meanwhile, coal's contribution to the mix dropped by 20%.

The EIA has stated it expects electrical generation from coal to fall as much as 15% during 2012, while natural gas's share will rise 22%.

Natural gas supplanting coal as our leading source for electricity is just one reason to stay bullish.

The second has much more lucrative rewards for investors...

The Holy Grail in Energy

Slowly but surely, we're seeing the signs: First, it's a headline buried in a local paper. Then a few bigger stories pop up — a new vehicle fleet being converted to natural gas, or plans to build LNG plants and filling stations...

Shell recently announced plans to invest $250 million to build a string of LNG fuel stations across Western Canada. The move will drastically cut fuel bills to run their truck fleets.

So why do alternative transport fuels hold so much potential?

Taking a bite out of oil's monopoly over the U.S. transportation sector is the first step to weaning ourselves off of foreign imports.

Thus, replacing gasoline and diesel has become the holy grail of energy investing.

But the U.S. trucking industry is no small egg to crack. There are roughly 15.5 million trucks logging more than 430 billion miles every year, accounting for 70% of all freight transported within the United States and pulling in over $250 billion in annual revenue.

It all adds up to nearly 60 billion gallons of fuel being used every year.

~~eac_nat_gas~~

Nowhere else will you find such a disparity energy usage...

Allow the EIA to crunch the numbers. You'll see that oil dominates 93% of the sector:

Cracking into the sector won't be easy — and it certainly won't happen overnight.

Fortunately, some investors already have a plan in place.

Beat Even Exxon's Profits

I wasn't kidding when I said Chris was right on the mark concerning natural gas over the long run.

“We don't have to bother with the producers, their dry holes, or even the problem of where to drill," he explained.

"Think about it — we're going to have to spend $20 billion on new pipelines and facilities just to keep up. Imagine what it'll take to bite into our oil demand..."

This, my friends, is the road to profit, when natural gas prices are in the gutter today.

“That's the best part about these investments, it's doesn't matter how low those prices fall,” he continued. In the case of natural gas, lower prices are actually helping the transition.

It's one of the last cheap energy options available to us, and all that's missing is the right infrastructure.

~~nat_gas2~~

~~keiths_signoff~~

It's being used to create bendable phones and touchscreens... tiny self-powered oil and gas sensors... and even synthetic blood that can be used in any person on the planet.

Demand for this material has already jumped 4,000% in the past two years.

I'm talking about graphene.

But more important than what it can do for energy and technology is what it's going to do for investors.

Let me explain...

Seen This Show Before

In the mid-oughts it was uranium. A few years ago it was rare earths. Right now is graphite's time in the sun.

You see, graphene is made from graphite. And graphite comes from the ground.

So as demand for it rises (already up 4,000% with much more to go) and so does the price, mining companies with access to quality deposits are going to become very wealthy.

But, as happened with the uranium and rare earth bulls I've already mentioned, there will be impostors as well.

A year ago there were two pure-play graphite miners listed on the Toronto Exchange. Today there are more than 50.

Most are just hopping on a bandwagon, changing their name to something graphite-related to see if they can go along for the ride.

More than 75% of graphite production comes from China.

There are only a few legitimate companies with a producing or near-production graphite mine. Those are the companies you want to invest in.

Nuts & Bolts

Here's the deal with graphite...

Synthetic (man-made) graphite currently used in high-tech applications sells for up to $20,000 per tonne.

Natural graphite (mined) sells for much less, about $2,500 per tonne right now. That's up from about $1,000 just five short years ago.

Why?

Because new advances are allowing mined graphite to be used in applications once reserved only for man-made graphite. And with a price difference of $17,000 per tonne, you can bet companies that need graphite now want the natural stuff.

But there's a catch...

Not all natural graphite is created equal. It's measured by two things: size of the flake and carbon content.

Only the largest graphite flakes with the highest carbon content fetch the highest prices.

Ahead of the Herd

As I just said, two years ago you could count the number of viable non-Chinese graphite producers on one hand. Now the number of “proposed” graphite projects is about to cross 100.

So how do you know which are legitimate and which are trying to go along for a ride?

Research.

I've been doing my own for months. I even went to visit a graphite mine last year.

The company I found has already delivered a modest 60% gain so far.

But it's still early... The mine hasn't even started producing yet.

When it does, it's off to the races.

What's more, an independent security analysis firm just released a full briefing on the industry and all its players this month.

Industrial Alliance Securities ranked 36 graphite companies in control of 98 graphite projects.

It put the companies in three tiers — Lower, Mid, and Top — according to amount of graphite, exploration, feasibility studies, permitting, and more.

The company I found last year — and which still has plenty of upside once production starts — was ranked at the very top of the Top tier.

It was the best of every single graphite project that was evaluated.

Here's a paraphrasing of how that 31-page research report concludes:

... A minimum of 4 new mines and as many as 23 will be needed to go into production outside of India and China between now and 2020 to cope with the growth in demand.

We identify 36 companies, out of which 6 qualify for our Top Tier category. These companies operate the most advanced projects that could be taken into production in a short time frame. Companies in this group are likely to enjoy the first-mover advantage and produce returns for investors in both the short and the long term.

As the exploration season heats up, investors will need to look for the first indications of which companies are wasting time and which are advancing step by step in establishing the right deposit, the right management and most importantly the right graphite to start production in the next 3 to 5 years.

After releasing that report earlier this month, Industrial Alliance Securities initiated coverage on what they thought was the best graphite company to invest in.

Because it's closest to production, has large flake/high carbon graphite, and a huge, proven deposit... Industrial Alliance rated it a Speculative Buy with a $3.00 price target.

But the stock — which I cover in full detail here — is currently trading for $1.65.

Word is slowly getting out...

~~nicks_signoff~~

But is natural gas really an underdog at this point?

Once you look beyond the short term, it's nearly impossible to think so — especially considering global gas production is expected to triple by 2035.

For those of you who aren't keeping score, that increase in production is roughly three times the current production of Russia, the world's top gas producer.

And as we've said many times before, we're staring down an unconventional road in the energy sector...

You can see above how important these unconventional resources are to us.

In the case of natural gas, half of our recoverable gas is from unconventional sources.

By now, most of us have seen or heard about the growth expected to take place in the prominent shale formations across the country. 

When the International Energy Agency (IEA) released their latest report, Golden Rules for a Golden Age of Gas, the future looked even brighter for a certain group of bullish natural gas investors...

The Trick to Gas Investing

A little tip for natural gas investors: Don't focus on the glut, or even the ultra-low prices that followed it.

Avoid looking for short-term profits in natural gas, because if you're looking for prices to rebound to $10/Mcf within the year — or even the next two years — you're going to be sorely disappointed.

Simply put, the transition to natural gas won't happen overnight.

But it will happen.

And you can certainly bank on it, starting today...

Breaking One of Their Golden Rules

One of the golden rules proposed by the IEA is to treat water responsibly.

The goals laid out directly in the report were simple enough.

• Reduce freshwater use by improving operational efficiency; reuse or recycle, wherever practical, to reduce the burden on local water resources

• Store and dispose of produced and waste water safely

• Minimize use of chemical additives and promote the development and use of more environmentally-friendly benign alternatives

Buried on page 54 of the IEA's new report are all the reasons why water is so critical to these tight gas plays.

For starters, one shale well costs upwards of $8 million. The cost includes (among other things) buying and transporting more than 2,000 tonnes of sand and over 15,000 cubic meters of water.

The latter alone involves more than 500 trucks to haul the water to the site.

On that same page, you'll find one of the best ways to profit by breaking one of these golden rules...

According to the report:

The hydraulic fracturing process accounts for around 40% of the total well cost — around twice as much as the second most expensive item, the rig itself.

By comparison, a typical onshore conventional vertical gas well in the same area would cost around $3 million, with 40% being spent on the rig.

Below, the IEA report shows us exactly how important (and costly) hydraulic fracturing is to the entire development process:

Now imagine what happens when drillers are able to both cut costs and increase production, all in one clean step...

Last week, I told readers this game-changing technology is only now grabbing attention from the major shale players.

This new technology removes water from the equation!

~~keiths_signoff~~

The biggest energy investment happenings this week centered on natural gas.

First, research firm Wood Mackenzie came out with some estimates that bode very well for U.S. shale gas exports...

It says by 2020, Europe will be using more U.S. shale gas than European.

The EU's dependence on imported gas will increase to 86%.

It also said China will increase LNG imports by 80% to meet domestic demand by 2030.

Natural gas in Europe costs $10 per thousand cubic feet (tcf) right now and even more in Asia. It's going for $2.57/tcf in the States.

So you can bet the rest of the world wants to get their hands on that cheap gas.

Ain't Seen Nothin' Yet

I know the phrase "fracking boom" has been tossed around a lot lately.

And if one was already under way, it's about to go sonic...

The Ohio House and Senate have now passed a law that will allow fracking to grow responsibly.

It will require companies test water within 1,500 feet of proposed wells, report the fluids and chemicals used in drilling, and track the wastewater after it's injected into disposal wells.

The bill has paved the way for Ohio to add 65,000 jobs and $5 billion in shale gas investment in the next two years. The number of wells there is expected to grow 3,025% by 2015 as a result.

Other states are working on similar measures that will allow fracking to expand while holding drillers accountable.

Even better for the industry and its investors, new fracking methods are being perfected that use no harsh chemicals or water at all.

These methods will do wonders to appease environmentalists — not to mention be beneficial for the bottom line.

Right now, it can cost as much as $15 for every barrel of wastewater that has to has to be hauled away from a frack site. The industry uses more than 56 million barrels of water each day.

This waterless fracking method is already being used by Chevron, Shell, and many other drilling giants.

It's going to kick the fracking industry into overdrive...

~~nat_gas2~~

Call it like you see it,

Nick Hodge
Editor, Energy and Capital

Obama's Got Gas (It's Natural): What to Do with a Glut of Gas
Just as we saw in the early days of the U.S. petroleum industry, the real investment potential lies with infrastructure.

Coal Investment Opportunities: Three Ways to Invest from the Death of Coal
Coal-fired power production is dwindling, but exports are set to soar.

Keynes, Mustangs, and Oil Prices: Bill Gates' Burger
There is perhaps nothing quite so agreeable as a hot spring day, laughing children and burning burgers. And despite my best intentions, I burnt them black and crisp.

Deepwater Oil Investing: Three Stocks to Buy in a Market Slump
Energy and Capital Editor Keith Kohl takes a look at the $175 million gamble these investors lost.

The Solar Blood is in the Street: Solar Industry Cliffs Notes
In 1946 the first ever general purpose computer weighed 27 tons and cost over $5 million to build. I think today is the 1946 of the solar industry... and dismissing it now would be just as foolish as dismissing the computer industry back then.

1.5 Billion Barrels of Oil Found in Ohio: New Drilling Method to Turn Ohio into The Next Bakken
This company's drilling method received "technological innovator of the year award" for 2011. This is the future of shale drilling. Period.

Fossil Fuel Cold War Brings America Back: The New 1%
Unless you've been living under a rock, you probably already know at least something about the oil-shale boom going on in the Western United States and Canada. What I want to tell you about today is the next step in America's steady return to the top of the global energy food chain.

Solving Fracking's Water Issue: Frack This
The EPA has evaluated homeowner water wells near fracking operations and determined that no chemical or pollutant occurred in a quantity worthy of further regulation or action. But if that's not good enough for you, consider this...

Taxing Fat: Obesity in America: What About the 66 Percent?
Analyst Ian Cooper takes a look at the only two obesity drug stocks to own this summer.

Investing in Fracturing Technology: The Next Generation Frack
Today I want to show investors one alternative to hydraulic fracturing that's about to steal the spotlight from the shale revolution.

It was too early in the morning to argue with the man.

Luckily, I happened to agree with him.

We were making our way north on U.S. Route 59, and the sun hadn't yet shone its face.

I'd brought up the ban on hydraulic fracturing that was recently approved in Vermont, and my friend — a man who's been working on a drilling rig for the better part of his life — was having a good laugh over it.

When I mentioned New Jersey, he let out a roar.

“That's rich,” he remarked.

“I'd like to see them try to impose a ban in some place that actually mattered.”

I'll admit I expected that kind of sentiment coming from him.

He's been working the same Texas oil fields where more than two and a half million barrels of crude flowed back in the 1970s.

He was there when production started to waver, and he stuck around for the steep decline:

All it took was one phone call from him for me to catch the next flight to Houston...

I knew this opportunity was too good to pass up.

Tight Oil and Gas Rush

According to EIA data, U.S. oil output has topped six million barrels per day. We haven't seen production levels that high since 1998!

It's good news any way you slice it, and it's primarily thanks to these tight oil and gas plays sprouting up across North America:

But it seems nothing goes off without a hitch — and our domestic oil boom is no exception...

The Downside of the Shale Revolution

By coupling horizontal drilling techniques with hydraulic fracturing, we've finally seen some positive news for U.S. oil production, reversing a decades-long decline and unlocking billions of new barrels of supply.

But both my friend and I have seen the downside of shale production...

I myself had the distinct pleasure of witnessing the recent fracking protests firsthand.

And having worked in the Texas oil and gas fields since he was a teenager, my buddy has seen his share of wastewater ponds.

But he isn't overly concerned about the water issue surrounding fracking.

What he said during our drive was enough to pique my interest: “I'm not worried in the least — and neither will you be after today.”

~~eac_nat_gas~~

Think Bigger, Invest Better

There's no question that we have the resources.

Now it's all about finding more efficient ways to produce them.

If there's one thing we've tried to get across to readers, it's that technology will be the lynchpin for the U.S. oil and gas industry going forward.

And the area ripest for change right now is in finding an alternative to hydraulic fracturing, a method we've been using for the past six decades.

Hydraulic fracturing has its issues — particularly when it comes to that ever-precious resource, water.

Natural gas production from the Barnett shale play alone used more than 450 billion gallons of water in 2006.

Imagine the ramifications of waterless fracturing technology...

It would mean no more wastewater ponds; conserving twelve million gallons of water per well that is hydraulic fractured; and even eliminating the massive truck traffic that comes with hauling three million pounds of sand to the rig site.

My friends, not only is this a possibility...

It's happening right now.

It's one of the reasons I was driving a pickup truck around Texas that day: I was doing my homework on a company sitting on the solution to the fracking equation.

This company set up shop in the United States less than a year ago, and their new fracturing technique is starting to make the major shale players rethink their drilling and completing options.

Learn more about their game-changing methods here.

~~keiths_signoff~~

But the natural gas industry is about to open up the doors of its Enola Gay.

Here's what I mean...

Opponents of hydraulic fracturing say the process mixes dangerous chemicals with water that can contaminate local aquifers.

Despite the fact the U.S. Environmental Protection Agency just completed a test of 61 wells in northeastern Pennsylvania, where citizens have been complaining of contamination since 2009, and concluded the “sampling did not show levels of contaminants that would give EPA reason to take further action”...

The environmentalists' rhetoric is still heating up.

Small-town Paper, Small-town Mind

Take North Carolina, for instance.

The state currently has a ban on fracking that state legislators and the Democratic governor are trying to lift.

Gov. Beverly Perdue put forward a plan this week that would create a workgroup to evaluate and make regulatory recommendations.

She said, “If done safely, fracking can be part of a larger energy solution to create jobs and help lower energy costs.”

A similar plan is moving through the state houses to impose regulations by 2013 and lift the ban by 2014.

But Richard Freudenberger of Hendersonville, NC, isn't on board.

And he wrote a letter to the editor of the Raleigh News & Observer to make his opinion heard:

Anyone in North Carolina interested in the quality of our drinking water should be concerned over this development. Hydraulic fracturing and horizontal drilling are controversial issues in places such as Pennsylvania, Ohio and Oklahoma, where unexplained incidences of earthquakes and deteriorated drinking water quality have come on the heels of this new technology.

The fracking method uses water and a proprietary (read: secret) chemical cocktail to aid in fracturing subsurface rock formations, then disposes of the water through deep injection wells at high pressure.

This is a horrific waste of water and a real risk to our drinking water supply.

Water is the next oil, in terms of scarcity. Are we really willing to trade North Carolina’s clean water for cheap fuel?

He means the Pennsylvania where fracking is legal and booming, and where the EPA just ruled fracking doesn't contaminate ground water.

He means the Ohio where fracking will add 65,000 jobs and $5 billion in investment to the state's economy by 2014... where 64% of voters think the economic benefits outweigh the environmental concerns...

And where the Ohio House is about to approve rules Republican Governor John Kasich has put forward to responsibly grow the industry.

Ohio has 72 fracked wells right now.

The state's Natural Resources Department says there will be 2,250 by 2015.

About That Water Thing

As I've already told you, the EPA has evaluated homeowner water wells near fracking operations and determined that no chemical or pollutant occurred in a quantity worthy of further regulation or action.

But if that's not good enough for you, consider this...

Cleaning frackwater will nearly be a $9 billion business by 2020.

This is one of those cases where innovation will solve a potential problem.

There's already one company that has 13 patents for cleaning chemical-laced water that has been used for fracking.

It makes the water 100% reusable, so it doesn't have to be stored in a pond or trucked offsite. It also does it for half the price of its competitors.

Right now it's trading for less than a buck — but we think it could easily hit $2 to $5 per share as it brings to market a solution that will alleviate one of the main objections to fracking.

It's profiled here along with other fracking investments.

And if that weren't enough to silence the water critics and line your pockets, there's another new development we're just starting to get wind of...

Waterless fracking.

That's what I mean about the natural gas industry opening the doors of its Enola Gay. 

Waterless fracking is the nuclear option.

~~nicks_signoff~~

And depending on its success, Cuba would have finally had the chance to meet its nearly 200,000 bbls/day addiction to crude, maybe even become an oil exporter...

Repsol decided to drill for oil in the waters off the northern coast of Cuba.

Headlines at the time hailed it as a game-changer for the country's deepwater oil exploration.

An offshore Cuban project involving a Spanish energy company using a Chinese-built rig, all paid for by an Italian service group...

What could possibly go wrong?

Mel Blanc couldn't have written a better script.

How to Throw Away $175 Million

Back in 2004, the USGS reported nearly five billion barrels of undiscovered oil and 9.8 trillion cubic feet of undiscovered gas in the North Cuba Basin of Cuba.

In the wake of BP's Macondo incident, everyone was so preoccupied with safety that not much thought was given to other potential showstoppers.

Like hitting a dry well.

Well, that's exactly what happened...

Perhaps the fact that Repsol failed to drill a commercial well the same year the USGS report was released was a bad omen.

It's hard not to feel a twinge of sympathy for Castro on this offshore gamble.

After all the careful planning, the hype over the billions of barrels within reach, and dreams of oil independence, all Cuba got was disappointment and a $175 million bill for their troubles.

A few weeks back, we took a look at how deep today's oil drillers are going to find new supply, which comes at a substantial cost compared to the conventional wells we've enjoyed in the past.

Despite the associated safety risks and the massive drilling costs, there's no shortage of gamblers...

Time to Ante Up

Put Repsol's debacle aside for a minute, because their dry well won't deter the rush to offshore drilling.

A conservative decline rate of 6% for the world's oil fields means that more than half a million barrels per day of new production must be found each year.

Desperate times call for desperate measures...

Mexico falls right into this category. If the country doesn't do something soon, they'll become a net oil importer within the next ten years.

The infamous decline of the Cantarell field, which peaked at 2.1 million barrels per day in 2000, is a red flag for what lies ahead for fellow super-giant fields.

Now Mexico is turning to the major oil companies like ExxonMobil and Chevron to develop its offshore oil reserves.

And nothing is out of bounds this time around.

Pemex is about to begin its first foray into ultra-deepwater territory (wells drilled in waters deeper than 6,000 feet) to help offset the steep decline occurring at the Cantarell field.

Stocks Ripe for the Picking

During the last two years, we've told you about the growing opportunity in several offshore drillers.

Take a look at some of our past success with this sector:

By 2015, Seadrill is expected to have another 18 offshore rigs in action, many of which are being specifically built to target ultra-deepwater fields.

Each ultra-deepwater rig can command a day rate of up to $650,000.

In case you're keeping track, we haven't seen day rates this high since they peaked in 2007.

The timing of these new rigs is not a coincidence... and the potential here is easy enough for any investor to see.

We're seeing longer contracts, higher demand for rigs, and companies paying more than ever for these offshore rigs to drill.

Global demand will soon top 90 million barrels per day and relies on failing super-giant fields like Cantarell for one-fifth of total production.

There's a reason one of the best oil discoveries in recent times was off the coast of Brazil — and why Russia is planting flags on the Arctic seabed...

What do you plan to buy during a market slump?

~~keiths_signoff~~

And it isn't hard to see why...

That's a one-year chart of the Dow Jones versus the Market Vectors Solar Energy ETF (NYSE: KWT), which holds well-known names like First Solar (NASDAQ: FSLR), Suntech (NYSE: STP), and SunPower (NASDAQ: SPWR).

As you can see, the solar ETF has lost almost 80% of its value. 

Let's see if we can figure out why, draw some historical comparisons, and find a way to make some money from this still nascent market.

Economies of Scale

Put on your freshman econ hat for a second while I give you a textbook definition:

In economics, economies of scale refers to the cost advantages that an enterprise obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased.

Just think about the computer industry, to which I like to compare the solar industry.

In 1946 the first ever general purpose computer weighed 27 tons and cost over $5 million to build.

No company was getting rich selling those. Economies of scale had to be created, whereby the cost of production decreases as more units are produced and more customers are attracted.

I think today is the 1946 of the solar industry.

Dismissing it now would be just as foolish as dismissing the computer industry back then.

Solar Cliff's Notes

The main argument against solar is that it's expensive. That's true — but so was the first computer.

The important thing to notice is that it's getting cheaper.

And at this stage in the game, that's actually detrimental.

When solar stormed on the scene in 2004 and 2005, it was touted as a panacea to rising oil prices and An Inconvenient Truth.

Actually, it's neither.

It's just one part of the energy industry. That said, it's susceptible to the same booms and busts as any other industry.

Back then the main ingredient was polysilicon. And it was expensive... exorbitantly expensive.

It sold for about $100/kilogram in 2006, but more than quadrupled to $400/kilogram by 2008.

Two things happened as a result:

1. Countries introduced subsidies to help consumers afford solar panels; and

2. Companies looked for other ways to make solar panels with less or no polysilicon.

The first gave us the feed-in tariff programs in Europe that led to widespread solar adoption in Germany, Spain, and a few others. But as the Great Recession ensued, governments began taking a knife to those subsidies.

The second spawned the development of other solar technologies, like cadmium telluride and copper indium gallium selenide (CIGS). Those are the technologies used by First Solar (NASDAQ: FSLR) and Solyndra, respectively.

As it turned out, the monumental spike in polysilicon prices leading up to 2008 was a red herring.

Between then and now, prices have plummeted from $400/kilogram all the way down to $23/kilogram last week.

~~solar_2~~

You've already seen the impact that's had on the market. Cheap silicon is killing competitive technologies.

Solyndra went bankrupt. So did Energy Conversion Devices. First Solar (NASDAQ: FSLR) has lost 90% of its value since last summer.

Makers of traditional crystalline solar panels have only fared moderately better...

When European nations started cutting subsidies, demand all but collapsed and took German and Chinese solar companies with it.

Q-Cells and SolarWorld were once the most dominant players in the industry. Now they're struggling to survive.

Chinese firms had it so bad, they were selling panels to the United States below market price, which led us to declare a 31% tariff on Chinese-imported panels last week.

The solar blood is in the streets.

Economics Again

Subsidy cuts and margin squeezes are part of an industry's maturation.

Those two hurdles, plus the current oversupply of polysilicon, will ebb.

Current lackluster demand and stiff competition from decade-low natural gas prices are forcing innovation and cost reduction.

There will also be consolidation.

This is all part of an industry's natural growth cycle.

The point here is that the industry is out of favor because prices are falling rapidly. That's what's supposed to happen.

And as prices fall, customers will once again be attracted. You know, all that supply and demand stuff.

In fact, it's already happening...

Solar attracted more than half of all clean energy investments last year, fetching $128 billion — up 44% from 2010. Installations were up 54% to 29.7 GW.

Once that hits the balance sheets, strong solar companies will start to rise once again. I'm looking at JA Solar (NASDAQ: JASO) on the module side and MEMC (NYSE: WFR) on the silicon side.

Apple (NASDAQ: AAPL) shares fell from $26 to $8 in 2000... That's where solar is now. 

~~nicks_signoff~~

Unable to swim against the rising tide of dirt-cheap natural gas, the coal industry is losing ground in the domestic power generation game.

And let's face it; without old King Coal, guys like Representative David McKinley (R-WV) and Senator Joe Manchin (D-WV) will be hard-pressed to come up with the kind of scratch they need to win elections.

But is the coal industry really heading towards life support?

I wouldn't be so sure.

Here in the United States, coal-fired power generation is getting about as much love as Rick Santorum at a gay pride rally.

In fact, in the first quarter of 2012, coal only made up 36 percent of U.S. electricity.

This is a far cry from the nearly 50% control the coal industry had as recently as 2008.

Also during this quarter we saw natural gas accounting for 28.7% of U.S. electricity — an 8% increase from Q1 2011.

There's no doubt about it; natural gas is well on its way to replacing coal as the dominant source of power generation in the U.S.

But that doesn't mean the coal industry will go the way of the typewriter...

The Most Bang for Your Buck

In the world of energy, I've seen pretty much every possible prediction scenario — from a world powered exclusively by solar and wind to claims that we have enough oil in the U.S. to end all imports for good.

These kinds of extreme predictions are nonsense.

They're about as reliable as Chinese drywall.

The fact is, here in the United States we are blessed with robust energy resources. Whether wind, coal, natural gas, solar, oil, or geothermal, we are so well-diversified there's absolutely no need to put all of our energy eggs in one basket.

And we don't.

That being said, the energy source that gives you the most bang for your buck will always take the lead.

This is why I predict that by 2020, natural gas will supply no less than 40 percent of our power generation.

Due primarily to increasing regulatory hurdles and cheaper natural gas, coal will supply about 20 percent, with nuclear maintaining around 20 percent and renewables picking up the rest.

Currently about 14 percent of total U.S. energy comes from renewables. Most of this is hydro, although wind and solar will experience the lion's share of growth over the next eight years.

While I do expect to see coal's contribution fall by more than 15 percent by 2020, I also expect to see massive growth in coal exports.

~~eac_alt_energy~~

Export This!

As I wrote last year, almost 15 percent of all globally-traded coal ends up in China. That figure is expected to rise even further.

Meanwhile, the U.S. has little interest in expanding its coal-fired power generation, but we're also the world leader in coal reserves.

It doesn't take a rocket scientist to see where I'm going with this...

We already know that a half-billion-dollar marine terminal in Bellingham, Washington, will soon be the destination for at least nine coal-filled freight trains that'll run back and forth daily from Wyoming and Montana.

And while there is certainly plenty of opposition, I fully expect to see this thing go through.

Interestingly, the EPA announced last month it wants the Army Corps of Engineers to do a review of the impacts of exporting U.S. coal through Northwest ports.

My guess is that this is just a formality. The EPA already has enough critics for enforcing regulations on coal-fired power plants. It's not going to seek out more opposition by putting the kibosh on port development for exports.

I suspect the EPA prefers to support shipping our coal bounty overseas to the highest bidder instead of burning it here, anyway...

With six planned coal export projects already being planned in the Northwest, it looks like the coal industry is simply adapting to a new domestic energy economy. It will be just fine.

Although I'd be more interested in picking up some rail plays on dips to take advantage of this opportunity: companies like CSX Corp. (NYSE: CSX), Norfolk Southern Corp (NYSE: NSC), and Union Pacific (NYSE: UNP).

And on the power generation front, I'm all over natural gas — particularly the picks-and-shovels companies that are facilitating the rise in natural gas power generation.

~~nat_gas2~~

~~jeffs_signoff~~

When news came out earlier this week that North Dakota supplanted Alaska as our second-largest oil producing state, we couldn't help but smile and pat ourselves on the back.

North Dakota has rocketed past our largest oil producers, California and Alaska, in just a few years by developing their shale resources.

We've witnessed oil fever overtake the Midwest since 2008.

Today there are 209 drilling rigs plugging away beneath North Dakota's soil.

But it's more than just the Bakken that has propelled North Dakota past the Last Frontier State in oil production...

On Alaska's North Slope — where 97% of the state's crude output is located — production has been in a veritable free fall:

When the Prudhoe Bay oil field peaked in 1979 at 1.5 million barrels/day, it was the beginning of the end.

Last year, the state pumped out an average of 562,000 barrels per day.

In March, more than 575,000 bbls per day flowed out of North Dakota's portion of the Bakken.

Unfortunately for North Dakota's oilmen, next up on the list is Texas. And don't expect Texas to fall easily — they're one of the few producers left in the country that's also expected to increase production.

Last year we touched on just a few of the reasons why Texas' oil future was brighter than most.

If you want a good idea of how important these two states are to our domestic supply, keep this in mind: The Bakken, the Eagle Ford in southern Texas, and the Permian Basin in west Texas make up 40% of our onshore production.

Of course, when you toss in the various capacity issues that come as a result of the rapid growth in the Bakken, we're looking at years — decades, even — before North Dakota ascends to the top spot.

But you don't have to pick a "winning" side in this fight...

According to the U.S. Department of Energy, our domestic production is expected to climb as high as 6.7 million barrels per day by 2020 — and stay above 6 million barrels per day through 2035.

In other words, we'll need an extra half million barrels per day over the next eight years.

And it's not hard to guess where we'll find that new supply...

North Dakota alone is projected to top one million barrels per day within the next five years, which would add at least 500,000 bbls/day to the mix. In 2011, Texas increased production by nearly 300,000 bbls per day.

For us, this is just the beginning.

Enjoy your weekend,

Keith Kohl
Editor, Energy and Capital

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