Washington (Platts)--7Sep2012/256 pm EDT/1856 GMT

The record amount of US natural gas in storage is masking a "fundamentally balanced" gas market this year and one that will be under-supplied in 2013 and 2014, FBR Capital's natural gas analyst said Friday.

"We estimate that the natural gas market is fundamentally balanced this year and [will be] under-supplied by 1.5 Bcf/d during 2013," FBR's Rehan Rashid said in a note to clients.

"However, current excess storage will continue to act as a headwind for near-term sustained price recovery as we estimate storage levels will take until the end of next year to decline to normal levels."

Not only will the market be slightly under-supplied next year, but if rig counts don't increase in 2013, then 2014 could be a year of record low storage, Rashid said.

"Without a significant increase in rig count during 2013, the market in 2014 could be under-supplied by 3.2 Bcf/d and cause storage to end 2014 at ultra low levels," he said. Rashid said the 2014 injection season might end with only 1.8 Tcf in storage.

Production response lags the markets price signal by as much as a year when prices are low or falling, Rashid said. When prices are increasing, producers still lag by six to nine months, he added.

Producers are slow to react to the market's signals because they don't believe significant price changes represent long-term shifts, they have contractual obligations to drilling companies and they have a backlog of drilled wells to complete, Rashid said.

"As such, assuming a roughly current dry gas rig count, we expect dry gas production to begin to show sequential decline sometime during late fourth quarter 2012," Rashid said.

Low prices are also causing US imports of LNG to drop precipitously as ships find better prices overseas, Rashid said. Declines in LNG will continue to help balance the market, he said.

"Net imports are on track to decline to 4 Bcf/d this year from 5 Bcf/d last year. We expect net imports to decline further to 2.8 Bcf/d next year and 1.8 Bcf/d in 2014," Rashid said. "This trend should play a critical role in balancing supply/demand."

Rashid maintained his 2013 average price prediction of $3.50/Mcf increasing to $4/Mcf in 2014. Noting the record amount of gas already in storage, he lowered his first-quarter 2013 price prediction to $3/Mcf from $3.25/Mcf and increased his second-quarter call to $3.50/Mcf from $3.25/Mcf.

--Bill Holland, bill_holland@platts.com

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