So when is the time to buy U.S. natural gas stocks?

A new analysis from Houston energy investment banker Tudor, Pickering, Holt, reported by Reuters Breaking Views, says late in 2011 or so.

Natural gas prices in the United States are in an extended slump with gas trading at about one-third its June 2008 price. The low prices are a result of a glut of supply—although a collapse in demand during the Great Recession sure didn’t help—that was created by the extraordinary success of the U.S. natural gas industry in producing gas from unconventional sources. New technologies have added reserves of more than 600 trillion cubic feet of gas from tight shale formation to U.S. reserves.

How much new supply is that? In 2007 the National Petroleum Council estimated that U.S. natural gas reserves from conventional sources amounted to 1,461 trillion cubic feet of gas.

Normally low prices would lead companies to cut back on drilling. Why spend the money finding and producing gas if you can’t sell it at a profit? And at the current price of $4.11 per thousand cubic feet (or per million BTUs) most natural gas producers are losing money. Analysts put the full-cycle, all-in breakeven price of natural gas at $6 to $8 per thousand cubic feet.

But not now.Thanks to the rules of oil and gas leasing, natural gas companies can’t stop drilling and producing unless they’re willing to forfeit their leases. These drill-it-or-lose-it leases say that a natural gas company has to start producing gas on any leased land within a period specified (five year is a common time period) or lose the lease. With leases going for as much as $30,000 an acre, not drilling can get awfully expensive.

Many U.S. natural gas producers have been able to protect themselves so far from the worst effects of these economics by hedging—that is locking in a higher future price for their gas. But the longer the supply glut goes on, the harder it is to find someone willing to pay a premium to current prices on a hedge. Tudor, Pickering, Holt estimate that protective hedges will get almost impossible to find in 2011.

Eventually the current low price of natural gas will clear the market as energy consumers switch fuels. The energy in a $90 barrel of oil right now is equaled by the energy in $27 of natural gas. Over time that means power plants, truck fleets, homeowners and other energy consumers will switch to natural gas. But that takes time.

Tudor, Pickering, Holt estimate that the lease effect will send natural gas supplies climbing by another 5% in 2011. And that will leave natural gas prices below $5 a thousand cubic feet through 2011.

Look to see more asset sales in 2011 as producers run out of cash and more financings as producers fill the gap between their costs and their revenue with investor cash.

At some point U.S. natural gas stocks are going to be a tremendous bargain. But if Tudor, Pickering, Holt is right that point is still a year or more away.