A rebound in U.S. natural gas prices? That could be the “biggest surprise” later this year, FBR Capital Markets analysts said last week.

The consensus average gas price for the final three months of 2011 is $4.50/Mcf, but prices could reach $5.50 because “gas fundamentals and sentiment” are “showing signs of life,” wrote FBR’s Rehan Rashid and Saurabh Lele.

“With the onshore natural gas rig count down 47, or 5%, from the beginning of this year and 128, or 15%, since last year’s peak supply-demand, fundamentals are following the path we believe is needed to help balance the market in 2012,” wrote the duo.

The Energy Information Administration 914 data, they noted, indicates that storage is 10% below last year’s figures even though production is up 7% year/year. In addition the futures gas price curve in the last six months of this year is up 6% over the last three months.

“The long end of the curve (2012-2015) is also up 5% over the last three months — this, perhaps, in recognition of looming export capacity addition and coal-fired plant retirement expectations,” said the analysts.

Based on the indicators, the FBR team reiterated that gas prices should be higher in 4Q2011. The analysts are forecasting prices to average $5.00/Mcf in 3Q2011 then rise by 50 cents in the last three months. For 2012 they are predicting prices to average $5.50/Mcf, which is 6.8% above consensus projections.

Although exploration and production (E&P) companies recently have underperformed the S&P 500 index FBR kept an “overweight” rating on the sector. “We believe that this outperformance will be driven by increasing recognition by the marketplace of the magnitude of remaining reserve growth, or ‘real’ asset growth, potential for the industry from the liquid and natural gas shales,” said Rashid and Lele.

U.S. conventional gas production since 1950 has totaled about 1,000 Tcf, while liquids output from the Lower 48 since the beginning of the 20th century totaled about 160 billion bbl, they said.

“We believe that the industry will be able to recover similar amounts of both oil and gas from the shales,” said the analysts. “Therefore, we remain bullish on the sector and believe that the reserve growth-based ‘real’ energy super-cycle has just begun.”

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