* Reported break-even costs appear low

* Bullish on crude oil prices (In U.S. dollars)

CALGARY, Alberta, April 22 (Reuters) - The pace of natural gas drilling in North America looks unsustainable given low gas prices and what appear to be higher than reported break-even costs, especially for some shale prospects, an analyst said on Thursday.

In lowering his outlook for gas prices for 2010-13, FirstEnergy Capital Corp analyst Martin King said he is surprised that the U.S. rig count has climbed steadily for 16 straight weeks, hitting a 14 month-high last week.

At least some of the gas drilling in the first half is likely being done so companies can retain leases, and for other operational issues, and some players have hedged output at above-market prices, he said.

"Once you get toward the end of this year and into 2011, what happens to the drilling rates then?" the Calgary-based analyst said after briefing an industry audience on his price forecasts.

"Your forward hedges look terrible, some of those lease retention agreements are probably going to expire ... they're going to get heavily impacted. When you get toward the end of this year and all these hedges expire, you're facing probably a 50 percent reduction in cash flow from some of these projects."

The New York Mercantile Exchange May contract was up 14.8 cents at $4.103 per million British thermal units on Thursday afternoon after supportive weekly U.S. gas storage data.

Prices remain close to last year's levels, even though the economy has staged some recovery, as inventories in the United States and Canada build up. Meanwhile, industrial gas demand remains sluggish, King said.

King pegged the average 2010 NYMEX price at $5 per mmBtu, down from his previous forecast of $6.50. He forecast prices of $5.75 for 2011, $6.25 for 2012 and $6.50 for 2013.

The weak market is currently being driven by "fear of gross oversupply by the end of October 2010," he said.

Last week, however, the number of rigs drilling for gas in the United States hit 973, the most in 14 months, according to oil services firm Baker Hughes.

Some companies have said their break-even costs in major shale plays have fallen toward $4 per mmBtu as technology for unlocking the gas trapped in the rock has improved. However, not all wells in all shale plays are cheap, King said.

"Eventually low prices will come back to bite this industry at some point, it's just a question of how long it's going to take," he said.

His outlook for the oil market is much more bullish. He forecast 2010 West Texas Intermediate crude at $83 a barrel, up $6 from his previous outlook and close to the current price.

Flattening and waning non-OPEC supplies and deteriorating spare capacity among OPEC members, in concert with economic growth in developing countries, should translate into strong markets for many years, he said.

King forecast WTI to average $87 in 2011, $95 in 2012 and $110 in 2013, all of which still well below the $147 a barrel peak hit in the summer of 2008. (Reporting by Jeffrey Jones; editing by Peter Galloway)

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