When rising oil prices dominate headlines across the country, as they so often have over the past several decades, the subject of alternative energy always picks up steam. So why are we only marginally closer to a viable alternative energy solution then we were 30 years ago?

Alternative Energy Isn’t Ready

Have you seen solar energy stock prices these days? First Solar (NASDAQ:FSLR), a giant of the solar industry, was a $163 stock just a year ago. Now trades for less than $30. A few years ago, T. Boone Pickens was one of the most vocal advocates of wind energy, but when’s the last time you heard the oil billionaire mention his prized technology?

I’ll tell you when: It was December 2010, when he officially announced that his Pickens Plan  to eliminate American dependence on foreign oil would no longer include wind energy.

Back to Fossil Fuels

After Japan’s recent nuclear-plant meltdowns, you don’t hear much of a push to expand that energy source in the U.S.. So that leads us back to good ol’ fashioned fossil fuels like oil, coal, and natural gas. Despite generating half of the electricity in the U.S., coal is environmentally destructive, and reserves are estimated to last only another 200 years.

There’s been plenty written about our dependence on foreign oil and how our domestic prices are so highly correlated to geopolitical risk that we largely have no control over, so I won’t retell that story. That leaves us with the natural-gas option.

The Hoopla Over Natural Gas

Regardless of what the headlines might lead you to believe, natural gas is not a new energy source — drilling began in the early 1800s. The ability to process natural gas into a liquid know  as liquefied natural gas (LNG) is when the fuel really became a viable long-term energy source because it became easier and more cost-efficient to transport.

Goldman Sachs estimates North America’s total gas reserves at equivalent to 75 years of U.S. oil consumption, or more than 100 years of our oil imports at current usage rates. Additionally, coal fell to its lowest level of contribution to U.S. energy generation last year, largely as a result of a rise in natural gas production.

Shale Gas — the Gift & the Curse

Shale gas has helped to transform and revive the natural gas industry. It has been called the most significant energy innovation of the past century. Experts say shale gas accounts for a third of all natural gas reserves.

The U.S. Energy Information Administration estimates that shale gas production will spike from about a quarter of all natural gas production to as much as 49% by 2035.  But with those discoveries of big shale deposits several years ago came depressed natural gas prices.

The shale gas findings significantly increased U.S. reserves, creating more supply than demand could sustain. So prices of natural gas have plummeted 71% from its 2008 highs. But it’s not just the oversupply that’s depressing prices.

Little Profit at These Prices

Natural gas has been billed as the only reasonable solution for our growing energy needs, and it has largely delivered in industrial and residential heating sectors. But as an electricity provider, and to a much greater degree in the transportation sector, natural gas continues to exist as more of a pipe dream than a viable option.

The ability to export natural gas to other countries, where demand is greater, continues to exist, but it’s still early. So far, only one export application, from Cheniere Energy (AMEX:LNG) has been approved by the Energy Department, with others awaiting approval.

But Cheniere’s business strategy of profiting from the huge disparity between domestic gas prices and those overseas is unique (albeit one quickly being copied by others), and I’m still not sure how much of our natural gas the government will ultimately allow to exit our shores.

Natural gas drillers will tell anyone who will listen that exporting the energy source, along with significant developments in the transportation industry, are the only things that will make continued production profitable. In the meantime, several producers have cut back on production, citing unprofitable margins at current prices.

All is not lost — natural gas prices will eventually rise as we convert old coal plants to natural gas and if the gas-exporting business takes off. But we’re a long way from having the infrastructure for it to be a solution for our transportation needs.

How Can Investors Profit?

Cheniere Energy is up 65% this year already and is one government delay away from taking a serious hit, but since its heavy debt risks have gone away with a $2 billion cash injection from investment firm Blackstone, this is not a short I would take on at the moment.

The United States Natural Gas Fund (NYSE:UNG) has been a great short for many, and there’s still profitability in the short term. UNG buys natural gas futures, holds them until expiration and then rolls the cash into new forward contracts.

The problem is that those forward contracts are at a premium and begin losing value from the moment UNG buys them as they fall toward the lower spot prices. This is a market environment for natural gas that I don’t see changing near term, and UNG’s flawed structure allows it to fall at a rate faster than underlying natural gas prices while not rising nearly as much as  it should on a short-term rise in prices.

I believe natural gas is still America’s energy solution of the future, but that future is much further away then many would have you believe.