These Gas Stocks Could Heat Up

The natural gas business is a strange place for investors these days.

With mixed pricing and demand signals coming in from consumers and producers, it hasn't been easy to figure out the winners and the losers.

The average price of the near-term natural gas contract traded on the New York Mercantile Exchange has been 2% higher than it was last year, and total domestic consumption of natural gas is up nearly 6% over the same period a year ago. The Interstate National Gas Association predicts that domestic demand for natural gas will grow by roughly 30% by 2020.

However, high drilling costs and a production glut in the central U.S. are keeping profits low. Some key producers of natural gas, including Chesapeake Energy (CHK Quote), the nation's third-largest, are tempering output in an attempt to wait out the slump.

Unless drillers hedge to lock in prices, they expose themselves to gesticulations in commodity prices. If prices are volatile, traditional natural gas companies may be too risky to touch.

That brings us to pipeline companies, who make money by charging fees that are dependent on volumes transported. They can succeed regardless of what commodity prices are doing, and are often less risky.

Who's the best among them? There are a number of considerations that go into determining that, but following are three that investors might find worth examining a little closer.

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