Gulf of Mexico a short-term bright spot for oil

Short-term energy market report finds onshore production on pace for decline.

By Daniel J. Graeber
Gulf of Mexico a short-term bright spot for oil
Federal report finds operations in the U.S. waters of the Gulf of Mexico less vulnerable to short-term fluctuations in crude oil prices than onshore basins in Alaska and the Lower 48. File Photo by A.J. Sisco/UPI | License Photo

WASHINGTON, April 13 (UPI) -- The U.S. Gulf of Mexico may return as the primary source of additions to crude oil production as onshore production fades, a federal report finds.

A short-term market report from the U.S. Energy Information Administration finds production will decline in most of the Lower 48 states and Alaska because of the pressure from lower crude oil prices, which the report said should stay below $40 per barrel through the first half of 2017.


Onshore declines, the report said, should be offset by gains in the Gulf of Mexico in part because the offshore areas are less sensitive to short-term volatility in crude oil prices.

"Several projects in the Gulf of Mexico that began operations or that will begin operations in 2014-16 will increase [regional] production from an average of 1.5 million barrels per day in 2015 to 1.9 million bpd in the fourth quarter of 2017," the report said.

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EIA estimates output from the Gulf of Mexico will account for about 20 percent of total U.S. crude oil production by next year. Total U.S. crude oil production, meanwhile, declines from the 9.1 million bpd expected during the first quarter of the year to an average 7.9 million bpd by third quarter 2017.


Eight fields started production in the Gulf of Mexico last year. Four are expected to enter into operations in 2016, with the Heidelberg field already producing as of January.

The short-term market report said pressure from lower crude oil prices means companies are scaling back their investment programs, which should hurt output from onshore basins. Production since April 2015 has declined by about 700,000 barrels per day.

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"The entire production decline came from Lower 48 onshore," the report said.

The Gulf of Mexico, however, is not immune from the pressure from lower crude oil prices. Few bidders emerged during a March auction for new acreage in the region, with no bids received for eastern parts of the area. Federal authorities said weak market conditions had "obviously" affected the industry's short-term investment decisions.

Overall, the EIA said it expects some level of recovery by late 2017 as oil prices are expected to hold above the $40 per barrel mark.

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