Given the recent innovations in drilling technology, the U.S. is now sitting on a virtual ocean of newly obtainable oil and natural gas. Inventories of both fuel sources are continuing to build, and the idea of American “energy independence” is quickly gaining steam. With that potential future becoming closer to reality every day, a variety of opportunities for investors are beginning to present themselves.

Last week, in the first of our series about what energy independence means for investors, we looked at one of more important pieces of the puzzle: energy logistics. After all, getting that oil and gas to where it’s needed is a critical component for any long-term energy plan.

Equally as important is figuring out what to do with our new-found bounty. While all our iPads, computers and smartphones are driving electricity demand in the U.S. higher, that usage won’t even put a dent in these growing reserves.

One idea that’s quickly gaining traction, especially with the current spike in gasoline prices, is using natural gas as a transportation fuel. Turning America’s abundant natural gas now being produced from various shale formations into vehicle fuel can reduce our dependence on foreign energy sources while simultaneously lowering fuel costs and emissions.

After all, the dream of energy independence won’t be fulfilled until we have a domestic source to fill up our tanks. For investors, playing that development is another step on this long journey.

It’s All About Compression

As pump prices continue flirting with record highs, our abundance of natural gas keeps sending its price lower. Last week it fell below $2 per million BTUs, and some analysts predict we’ll break through the dollar mark sooner rather than later. The nation’s underground storage facilities could become full by fall and lead to further price declines.

The reason for rising inventories: plenty of new supply and a lack of demand. Natural gas has already gained prominence for generating electricity as many utilities have switched to it and have begun building new gas-fired power plants. While power generation will account for significant future demand, using natural gas as a transportation fuel could be even more important.

Fueling our vehicles with natural gas comes down to how it’s compressed. At its core, compressed natural gas (CNG) is natural gas that’s squeezed down to 1% of its normal volume and stored in a gaseous state. Liquefied natural gas (LNG), which I’ve written about as a way to increase American energy exports, is cooled to a liquid state under higher pressures. CNG is currently cheaper to produce and store, but it requires more tank space in a vehicle versus LNG. And LNG gets the nod when it comes to moving vehicles long distances.

Currently, tractor-trailer usage commands nearly two-thirds of current diesel fuel demand. According to research done by industry group NGV For America, the amount of diesel fuel now used annually for highway travel would work out to 6 trillion cubic feet of natural gas, and switching to LNG could reduce oil imports by more than a million barrels a day.

There certainly is an economic incentive as well. Moving from diesel to natural gas as a logistics fuel has the potential to save companies more than 50% per gallon on their fuel costs. Likewise, motorists switching to CNG as their commuter fuel could save more than the equivalent of $1.50 a gallon in regular gasoline. In addition, lower exhaust emissions produced by CNG and LNG should please the greens.

“You Go First”

Like the rest of the road to energy independence, using natural gas as a transportation fuel isn’t without potholes. The effort to adopt the fuel source has been slow, a victim of a classic Alphonse-Gaston problem. Currently, the U.S. has only about 1,000 CNG and LNG filling stations and only about 90,000 of the nation’s 223 million cars and trucks run on CNG. The infrastructure industry is basically saying if there are no CNG cars, then why should we invest in refueling stations and vice versa. The “you go first” attitude has been detrimental to spurring natural gas adoption.

However, times may be changing. While the fate of government subsidies for natural gas as a transportation fuel continues to disappoint, private industry is finally taking notice. Both GM (NYSE:GM) and Chrysler announced plans last month to sell a limited number of bi-fuel pickup trucks that run on both natural gas and gasoline, while Honda (NYSE:HMC) already markets a CNG version of popular Civic model. Heavy-truck manufacturers Kenworth and Peterbilt, units of PACCAR (NASDAQ:PCAR), have also taken a shine to LNG, offering new models as well.

The infrastructure side is improving as well. Industrial giant GE (NYSE:GE) and leading natural gas producer Chesapeake (NYSE:CHK) have partnered to create CNG fueling stations for consumers. The group hopes to build an initial 250 stations but could branch out into more ventures.

Where to Invest

Converting to a natural gas future won’t be easy and will take huge infrastructure requirements, but the wheels are finally in motion to make that happen. For investors, both CNG/LNG filing station provider Clean Energy Fuels (NASDAQ:CLNE) and engine maker Westport Innovations (NASDAQ:WPRT) are often cited as top plays when it comes to natural gas as a transportation fuel.

I can get behind Clean Energy Fuels due to its leadership position in the fueling station market, especially when it comes to its deals with corporate clients, but Westport is a little more troubling. The Canadian engine maker has a joint venture with diesel-engine stalwart Cummins (NYSE:CMI), in which Westport adapts Cummins engines to run on natural gas. This venture results in the bulk of Westport’s business and revenue.

However, things have begun to get somewhat dicey. At the end of March, Cummins announced it will begin producing its own 15-liter engine, the kind used in 18-wheelers, by 2014. That will directly compete with Westport’s own 15-liter engine, which isn’t included in the joint-venture agreement. At the same time, Navistar (NYSE:NAV), another maker of diesel truck engines, announced it will also begin making natural gas-fired engines.

This can be viewed as a validation of natural gas as truck fuel in the future, but it poses a serious problem for the smaller Westport. The firm is now competing with two of the best and biggest engine makers in the business. For investors who want to bet on natural gas-powered transportation, both Cummins and Navistar make better choices than their smaller rival. Additionally, Clean Energy Fuels gets the nod as the infrastructure play.

As of this writing, Aaron Levitt doesn’t own any the stocks mentioned here.