Oil and natural gas could possibly be the drivers in the global economy over the next several years.

North America's demand for natural gas is expected to rise this winter affecting all sectors and translating into high bills for consumers and increased operating expenses for businesses. This coupled with a notable decline in domestic production from 2003 and growth in residential commercial and industrial sectors will put upward pressure on gas and oil prices as stated by the Washington-based natural Gas Supply Association.

As well, predictions for the upcoming winter from the National Oceanographic and Atmospheric Administration is a colder than normal winter season in the East, and warmer than normal temperatures in the West.

To summarise, if you live anywhere in the eastern regions of the USA and Canada, it's going to be cold and expensive this winter!

Now to shift our attention to oil; global demand has been growing at 1.5 percent per year over the past five years, yet production capacity growing at a rate of 0.2 percent. The difference has put extreme pressure on reserves, and is one of the many reasons we see oil in the $50 price range.

Further to the point of reserves, El Paso Corp, US's largest natural gas pipeline company filed financial results on Thursday showing a loss of $1.93 billion for the last year. This is extremely concerning for the US energy consumer.

El Paso warned, in August, that it would write down the value of its oil and gas assets, reducing shareholder equity of some $1 billion. All this was done in order to correct accounting swaps and other “transactions” entered from 1999 to 2002.

These write-downs were initiated when El Paso cut its proven oil and gas reserves by 41 percent. Reserves are widely accepted as an estimate of the company's future earning power.

Now don't let all this seemingly bad news frustrate you as an investor. The prudent student of the markets should examine all these factors and deduce that opportunity exists.

Demand for oil is a global issue and growth opportunities exist in nations (or regions) where a dominant and/or growing middle class (population wise) greatly influences the economy (consumer spending, new housing starts etc).

Go East, young man

Outside the USA, China is the second largest consumer of oil, so you could shift his or her attention to this nation. China consumes 6.3 million barrels of oil per day! Perhaps this is why Warren Buffett, arguably the world's most successful investor, took a half a billion-dollar bet on China's PetroChina, a state owned dominant oil producer. The point here is that worldwide demand for oil is driven largely by population growth and industrialisation.

So how will the world meet this rising demand for oil and natural gas products?

Companies are aware of the increased global need for oil and natural gas. In the business world when one encounters a “need”, a profitable business model around this need can be constructed. That said, companies are scrambling to find the most cost effective ways to increase their reserves and ultimately their revenues.

Specifically, developing nations are now being scouted to see if they have the appropriate political climate as well as geographical and topological make-up to warrant investment and capital expenditure. West African nations, along with parts of Russia (former Soviet Union and neighbouring countries) and northern Canada are being evaluated as candidates for major oil expansion and exploration. Deep water drilling has proven to be another possible route for oil production. This model obviously has more expense attached to it, yet in years to come analysts predict it will be the source of ten percent of the world's oil production.

How to profit

One company that investors should consider is Kinder-Morgan Energy Partnership LP (KMP: NYSE). Kinder Morgan Energy Partners, L.P. serves as the sole general partner of a partnership, formed to acquire, own and operate three pipeline systems used to transport natural gas liquids, refined petroleum products and carbon dioxide.

Kinder Morgan is the USA's largest publicly traded pipeline partnership. And because it is organised as a master limited partnership the company is able to pay out sizeable fractions of is cash flow to shareholders free of US corporate income tax.

Kinder Morgan has not missed a dividend payment to shareholders since its inception as a publicly traded company in 1996. In fact the company has raised its dividend each year (it currently pays a six percent dividend).

The fact that the US demand for natural gas is sharply on the rise, and that a majority of new homes in America use natural gas lends support to the notion that the business of pipelines and transport to natural gas could be profitable for the timely investor.

Paul Jenkins is a financial advisor with the LOM Group.