There’s an old saying that goes something like this: “In the valley of the blind, the ‘one-eyed man’ is king.”

If you seriously consider what I’m about to show you, this old saying could well ring true for your investment portfolio at the end of this year. Perhaps even before. Let me explain…

At roughly $2.41 per million Btu, U.S. natural gas prices are in the dumpster. The truth is, they’ve been declining for years. But the recent shale gas boom accelerated their fall. Now they’re the lowest they’ve been in over a decade.

[ad#Google Adsense 336×280-IA]If it gets any cheaper, the companies that supply it will be paying you to take it. You see, they have a huge problem.

They have to keep producing in order to generate revenue, even in the face of declining prices. The problem here in the United States is that supply exceeds demand by a wide margin. And it’s getting wider all the time.

Why? Stores of natural gas at record levels… A mild winter… New wells coming online every month…

No wonder it’s eviscerating shares of explorers and producers. Take a look at the six-month chart for Chesapeake Energy Corporation (NYSE: CHK), for instance.

It looks like the first big drop on a roller-coaster. Shares are off 38% since last July.

Another producer, Cimarex Energy Company (NYSE: XEC), has a similar chart.

Its shares have virtually fallen off a cliff, dropping over 37% in the same timeframe as Chesapeake’s.

The fact is, even companies with minimal exposure to natural gas are getting hammered.

Our intuition tells us that the outlook for these companies – as long as natural gas remains at such low prices – is dismal at best.

In order to survive, some will be acquired by competitors. Shares of many will touch 52-week lows. For their decline to reverse course, the price of natural gas has to increase.

With a record supply glut firmly in place, demand has to increase dramatically. What could possibly cause that to happen, especially in the relative short term? Let’s ask the one-eyed man.

Back to the One-Eyed Man

The one-eyed man sees things no one else can. Author Nassim Nicholas Taleb coined the term “black swan event.” It’s a metaphor used to describe an event that’s a total surprise.

Now, I’m not the one-eyed man, but right now, low U.S. natural gas prices are clearly setting up several black swan events. All will singly – or, depending on the timing, collectively – increase the demand for natural gas.

Here’s the one-eyed man part: It’ll happen much faster than anyone currently thinks it can. This will have far-reaching economic impacts for the United States and, indeed, the world. Once these events take place, they’ll be rationalized in hindsight, as if everyone always knew they were going to happen.

These events will surprise most investors. But they’ll also make a few very wealthy.

If you’re aware of them, understand them, and invest in companies that will benefit from them, and you’ll be just like the one-eyed man. What are they? I’ve identified three.

Power to the People

The first one is already quietly underway. It’s the use of natural gas to power new electrical generating stations, and to repower older coal-fired plants.

There are natural gas pipelines within reach of just about every major generating station in the country. With even more strict emission regulations for coal-burners on the horizon, the logical choice for a baseload replacement fuel is natural gas.

In 2010 (the latest figures available), the Energy Information Administration (EIA) said utilities used about 515 billion cubic feet (Bcf) of natural gas for power generation. That equates to 24% of all power generated in the United States.

That’s a 7% increase over 2009. Here’s a chart from the EIA depicting the breakdown of power generation types in the United States.

Take note of the amount of generation that’s currently supplied by coal. Most of the 594 coal-fired power plants are baseload plants, meaning they run 24 hours a day, 365 days a year.

Over a third of them are too old to meet the new stringent emission requirements due to take effect in a few years. Natural gas-fired plants will replace most of them. That represents a massive, additional source of constant demand for natural gas.

Cool it, Ship it, Re-Gasify it, Sell It

The second event has to do with selling natural gas to customers elsewhere in the world. Natural gas in the United States sells for a third of what it costs in Europe, and one-sixth of what it goes for in Japan.

The only way to get it to customers on other continents is to liquefy it and ship it. Once liquefied, it can be loaded into specially built, liquid natural gas (LNG) tankers to transport it to re-gasification terminals anywhere in the world.

The problem is that the United States, other than a small facility in Alaska, has no liquefaction facilities that can compress and cool natural gas into a liquid for loading onto tankers.

While there are a number of companies planning such liquefaction plants, Cheniere Energy, Inc. (AMEX: LNG) is further along than all the rest. The company has inked three 20-year long-term LNG supply contracts with GAIL India, Ltd., Gas Natural Fenosa of Spain and BG Group in Great Britain.

If it can keep its construction plans on track, Cheniere will be the only game in town when it comes to exporting LNG. Other companies proposing to build liquefaction plants are years behind Cheniere.

The Biggest Black Swan of Them All

We’ve saved the best for last. Right now, the United States uses about 18.6 million barrels of oil per day. We import about 11 million barrels, or about 60%. According to the Institute for Energy Research, a full 71% of it is used in the transportation sector.

Imagine replacing all, or even just part, of that oil with natural gas. While natural gas-powered jets might be a few years off, cars, trucks, ships and even locomotives all run just fine on it.

And given its current price, natural gas is the equivalent of buying gasoline or diesel for a little over $1.00 a gallon. Remember those days? So what on earth are we waiting for? Why isn’t someone designing engines that run on natural gas?

Someone is: Westport Innovations, Inc. (Nasdaq: WPRT). Headquartered in Vancouver, British Columbia, Westport manufactures engines, fuel delivery and fuel storage systems using gaseous fuels.

Westport has over 400 patents on 130 distinct inventions regarding gaseous-fueled vehicles. It’s partnered with the likes of Cummins, GM, Caterpillar, Kenworth, Freightliner, Peterbilt, Mack and Hyundai in the development of natural gas engines for their vehicles.

Most recently, it teamed up with Electro-Motive Corporation, an OEM maker of diesel-electric locomotives, to develop a natural gas-powered locomotive for the Canadian National Railway.

It’s a bit of an understatement to say that business is booming. Revenue for its second quarter ending September 30, 2011 was $81 million, up 80% for the same quarter a year ago.

But what lies ahead for the company could make a few astute investors incredibly wealthy. CEO David Demers sums it up the best:

“With strong growth in all areas of our business, we now expect consolidated revenue for 2011 to reach between $240 and $250 million, representing growth of approximately 70% over calendar 2010.

“A few years from now, we expect that, looking back, 2011 will be seen as the tipping point for the use of natural gas as a transportation fuel.

“We are working with three of the top four heavy-duty engine manufacturers around the world, and more than 60 OEMs. Our Light Duty business works with seven of the top 10 automotive OEMs.

“This quarter, we announced a co-marketing agreement with Shell, the largest and most sophisticated liquefied natural gas (LNG) production company in the world, that would improve the economic case for acquiring LNG vehicles along with the infrastructure, providing a complete, cost-effective solution for fleet owners who want to unlock the savings, price stability, and environmental performance advantages of LNG.”

The bottom line: Three events are going to upset the natural gas apple cart, and I’ve listed three great ways to play them all. As my good friend Rick Rule likes to say, “Will you be a contrarian, or a victim?”

Good Investing,

David Fessler

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Source: Investment U