It’s already begun in Europe and Asia and it's gaining ground in North America. Natural gas-powered vehicles have a lot more advantages than their electric counterparts, says Brendan Coffey of Cabot Green Investor.

My neighborhood is home to a typical New England mix of vehicles. 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.

I live in a town that is actually an island connected by a causeway to the mainland, and does not have a gas station of its own. So I find myself envying the fact that my neighbors can fill up their car from a pump that receives its gas from the home natural-gas line.

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 in high-pollution areas, like seaports and airports.

To address those concerns, equipment such as forklifts, buses—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 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.

Reasons given were the wide availability of natural gas in non-OPEC nations, its tendency to burn cleaner, 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 online in power generation.

Gas is a particularly attractive fuel for regions, such as China, India, and the Middle East, which are urbanizing 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."

Delving deeper here:

  • China's demand for natural gas is expected to rise from the equivalent of Germany's demand today to the level of the whole European Union by 2035.
  • In the US, 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.

I have a list of natural gas-related stocks worth keeping an eye on, researching some more, and perhaps adding to your watch list to buy when the time is right.

NEXT: The Picks

Fuel Systems Solutions (FSYS)

An American company, Fuel Systems 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, including 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)

Westport 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)

This company develops and operates natural-gas filling stations. You've probably heard of oil billionaire T. Boone Pickens, who has been tirelessly working to get natural gas incentives passed in Congress since 2009; he 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 US 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.

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