They finally did it.

Gasoline prices have been creeping ever closer to the $3-a-gallon mark in my hometown. Now they’ve pierced through.

And with oil touching $100 a barrel, gas stations may as well be in a race to see who can reach $4 a gallon first.

As a driver, I bemoan every penny’s worth of price increases. But as an investor, there is always a way to profit from rising commodity prices.

[ad#Google Adsense]And it’s not what you’re thinking…

If you start looking around, you’ll see a number of articles on how to make money from higher gas prices. The vast majority of the pieces on the major financial sites offer the same tired plays.

To recoup some of the extra money lost at the pump, they suggest you buy a few shares of Chevron (NYSE: CVX) or ExxonMobil (NYSE: XOM). It stands to reason that $3 (or higher) gas is usually accompanied by equally strong oil.

Truth is, that logic is wrong. Most of the large, integrated oil companies don’t welcome soaring gasoline prices.

In fact, the non-partisan Phoenix Center conducted a study (which examined a decade of quarterly financial statements from more than a dozen top oil companies) found that for every 10% increase in retail gas prices, oil industry profit margins actually shrunk by -1.8%.

Sure, these companies fetch higher prices for their oil production. But their downstream refining and marketing operations must pay the tab. Before a refiner can make gasoline, it needs crude oil feedstock, just as a baker needs flour and sugar.

It’s the relationship between oil and gasoline — called the “crack spread” — that determines profitability of an integrated oil company. So don’t assume that $3-a-gallon gasoline automatically means a cash windfall for major oil companies.

But what if a company could profit from the high pump prices without having to pay exorbitant feedstock expenses?

What if there were a “secret recipe” that could turn out the same quality fuels with natural gas (which has plunged to around $4 per thousand cubic feet), instead of using $100-a-barrel crude oil?

Such a recipe exists… and I’ve found a company profiting from it.

One of three companies in the WORLD profiting from this unique method
The “recipe” is called the Fischer-Tropsch process. It’s a chemical reaction that converts natural gas into low-sulfur diesel fuel and other liquids.

I’ve been doing some research in the field and South Africa’s Sasol (NYSE: SSL) is a pioneer in the field of synthetic petroleum substitutes. It’s one of just three companies in the world monetizing this gas-to-liquids (GTL) technology.

The conglomerate already owns a bustling GTL facility in Qatar with the capacity to handle 34,000 barrels per day. Now, it’s pushing ahead with plans for a second plant in western Canada.

The first step, of course, is to secure a nearby source of natural gas. So in December, the company unveiled plans to spend more than $1 billion to acquire a 50% stake in Talisman Energy’s (NYSE: TLM) Farrell Creek assets. The site in British Columbia is currently producing anywhere from 1.1 to 1.7 million cubic meters of gas daily.

Given the gaping price spread between oil feedstock used by other refiners and natural gas used by Sasol, the economics of this investment are incredibly attractive. To get an idea of the potential, Royal Dutch Shell (NYSE: RDS-A) has a similar, but larger plant in Qatar that is expected to generate ongoing cash flows in excess of $4 billion a year.

There are trillions of cubic feet of stranded gas in remote areas where this technology could be used. And I’m betting that we’ll see more companies seeking to partner up with Sasol for its expertise in this area.

In the meantime, the company has plenty on its plate, from chemical manufacturing to oil exploration — not to mention a network of retail convenience/gas stores. Last year, those operations pushed earnings ahead 17% and funded an impressive 27% dividend hike. Right now the shares carry a 2.8% yield.

Action to Take –> With natural gas prices mired in a deep slump and oil prices flirting with triple-digits, Sasol is sitting pretty. This baker can sell the same expensive pies using much cheaper ingredients.

Of course, outsized profits always invite competition. But the upfront costs to build a gas-to-liquids facility are staggering, so there are formidable barriers to entry.

I’m keeping a close eye on potential appreciation in the South African rand (which can cut into earnings). But all things considered, I think Sasol is the sort of ground-breaking company that could be the way to play soaring gasoline prices… and you likely aren’t hearing about it anywhere else.

— Nathan Slaughter

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Source:  StreetAuthority