Energy prices have vacillated wildly over the last several decades. Crude oil, for example, has ranged from about $10 per barrel in the late 1990s to nearly $150 in 2007, reflecting both a quixotic and nihilistic relationship with investors. Is energy a risk asset class or a safe haven? The answer is that due to massive productivity induced supply gains in recent years, energy is an asset class in transition, creating substantial risks but also promising investment opportunities.

We see natural gas as one of those opportunities. Since its $13.45 per MMBtu peak in July 2008, natural gas has plunged to less than $3 as unconventional natural gas production has increased to 20 percent of domestic supply from just 5 percent. By comparison, crude oil prices have only declined 34 percent over that period. Thanks to directional drilling and hydraulic fracturing, energy experts project North America will have the capacity to become a net exporter of oil and natural gas by the end of the decade.

Because of insufficient energy infrastructure, demand for natural gas has not kept pace with the enormous additional supply. However, over time, demand will grow as the economics of natural gas meets up with better access, such as at gas stations. It currently costs just $18 to get the same energy equivalent from natural gas as it does from a $95 barrel of oil. That price equates to between 25 and 50 cents per gallon.

Already, commercial fleets of trucks and buses have begun converting to compressed natural gas engines. Virtually every major airport that uses a common rental car shuttle bus has shifted from diesel fuel to natural gas. Both Federal Express and United Parcel Service are in the process of converting their local fleets.

While natural gas hovers in the $2– to –$3 range in the U.S., in Europe, it is nearly $10 and in Asia, it is $15. Our competitive advantage has helped power a manufacturing resurgence in the United States. Relatively attractive labor costs, especially gauged against workforce productivity gains, a weaker U.S. dollar and relatively cheap natural gas, have coalesced to create a favorable manufacturing destination. Perhaps it is no surprise that Airbus, a French aircraft maker owned by a consortium of European governments, announced plans to produce its A320s in Alabama starting in 2018.

The disparity of natural gas prices worldwide has also prompted entrepreneurs to propose liquid natural gas (LNG) facilities. LNG enables natural gas to be transported. In response, the U.S. government has received several applications for LNG export licenses. This is a big opportunity, since both Germany and Japan have announced plans to move away from nuclear power generation. Natural gas would be the most cost-effective fuel source.

While long-term trends for natural gas seem favorable, there are risks. Environmental groups are challenging the safety of hydraulic fracturing on air and groundwater quality, and the industry must find a middle ground with the Environmental Protection Agency.

However, as long as natural gas production continues, the trend toward integration into a mainstream energy source will create a tailwind for prices. This transition will have important economic and political implications, but will also create enormous investment opportunity for investors with the vision and the patience to ride the trend.

BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Member FDIC. Not all products and services are available in every state and/or location. The information and opinions expressed herein are obtained from sources believed to be reliable and up-to-date, however their accuracy and completeness cannot be guaranteed. Opinions expressed reflect judgment current as of the date of this publication and are subject to change.