Montreal, Canada

One of the greatest investment themes over the past few years is to buy and hold the largest fuel storage companies based in Canada and the United States. Despite extreme volatility for oil and gas prices, these stalwarts derive their revenues from capacity increases – especially amid a period of high supplies for a particular fuel or refined product.

Canada’s Westshore Terminals Income Fund (Toronto-WTE.UN) has more than doubled over the past 12 months on a combination of rising coal export volumes and prudent currency hedging vis-à-vis the American dollar.  The trust unit, which must be converted to a corporation according to Canadian laws starting in January, currently yields an effective 12-month trailing dividend of 13.6% in Canadian dollars.

Over the next year, however, bombed-out natural gas prices might result in declining demand for coal in North America, Europe and Asia. Natural gas prices have collapsed again this year, down almost 40% and trading at a 52-week low of just $3.35 British Thermal Units (BTUs). Increasingly, more companies, including utilities, are shifting away from coal and buying cheap natural gas.

The world’s largest oil and gas storage facility, NuStar Energy LP (NYSE-NU), joined my Commodity Trend Alert (CTA) Portfolio in June and has gained almost 13%, including fat dividends.  The company has been the recipient of strong insider buying since last spring, which triggered a BUY. I also liked the more than 7.5% dividend at the time.

Even if you’re bearish on some segments of the energy complex, you don’t have to avoid the sector altogether. In fact, some companies can profit amid a supply glut and earn big bucks on storage fees. Right now, natural gas is in a severe bear market with an avalanche of supplies still hitting the market and depressing prices, mainly due to the advent of shale gas. Finding which storage companies can benefit in this environment is the safest way to ride gas heading into late 2010.