offshore currently produces 5 TCF of gas per year, more than 25
percent of U.S. production. Production has been essentially flat
since 1996, with declining shelf production offset by new production
from the deepwater regions.
This major energy source is vital to the U.S. economy
and has been the subject of debate in Congress and elsewhere. Published
production forecasts by government agencies, trade groups, and individuals
vary widely, from increases of up to 60 percent to a decline of
Is this increase possible? What is likely?
What is the impact of current land restrictions on
the industry's ability to deliver this production?
A representative group of recent forecasts shows peak
production ranging from 4 to 8 TCF per year, with the average falling
around 6.5, approximately a 30 percent increase over current production.
Except for the Energy Information Agency forecast, the forecasts
are at least two years old. The recently published Minerals Management
Service estimate of actual 2001 production is 5.1 TCF, lower than
predicted for 2001 in all but one of these forecasts.
The most optimistic forecast is the 1999 National
Petroleum Council study (shown in red). A small portion of this
production is attributable to that portion of the eastern Gulf excluded
from OCS Lease Sale 181. The NPC is currently preparing an update
of this study.
The least optimistic forecast is the Low Case from
the MMS 2001 Oil and Gas Production Rate Projections, with a decline
to 4 TCF in 2005. The High Case, not shown on the graph, is 6 TCF
in 2005. The authors of this document comment that the forecast
may be conservative because production is included only from known
Impact of Deep Water
These production forecasts are for the entire OCS.
However, over 99 percent of the production through 2020 is expected
to come from the Gulf of Mexico. The GOM shelf, which currently
produces about 80 percent of OCS natural gas, is a mature province
that virtually everyone expects to have flat or declining production.
Growth in production is expected to come from the deepwater.
As the deepwater Gulf of Mexico has been explored,
the proportion of natural gas reserves found has been found to be
much lower than on the shelf. In the MMS 2000 assessment, the total
assessed reserves for the shelf are 72 percent natural gas; for
the deepwater they are only 41 percent. Recent discoveries are mainly
For this reason, future forecasts will likely show
lower gas production from the deep water.
More Drilling Is Needed To Achieve Current Forecasts
The amount of new production added is strongly correlated
to the number of new wells drilled.
From 1997 through 2000, Gulf of Mexico shelf production
has declined by 7 percent per year. The Gulf of Mexico rig count
during this time was about 100.
In a projection based on the assumption that the number
of completions and the production per well will be the same as the
average of the 1990s for both shelf and deepwater, OCS production
will peak at about 5.5 TCF/year in 2004. This is lower than all
forecasts except the MMS 2001 Low Case, and much lower than the
amounts in the NPC and EIA forecasts.
A relatively small increase in the number of natural
gas wells completed could increase production. This would likely
happen if gas prices rise or other incentives, such as deep gas
royalty relief, increase drilling.
To reach the EIA and MMS 2000 forecast rate, OCS
drilling activity would need to increase by nearly 50 percent. The
MMS 2000 forecast, in fact, assumes deepwater drilling activity
increases by 57 percent over the average for the 1990 through 1998
Note that even the higher activity forecast shows
declines after 2010. These projections may be optimistic since no
increase in decline rate or decrease in average reserves as has
been historically seen is included.
Expected technological improvements will somewhat
reduce the need for increased activity -- however, it is clear that
more wells are necessary to achieve even the more conservative forecasts.
Increased drilling activity can be stimulated through royalty relief,
access to currently restricted areas, technological improvements
or higher prices.
Industry activity -- and therefore, rig count --
is strongly price driven. Only in those years when gas price was
over $3/MCF was the Gulf of Mexico rig count substantially above
today's level of 100 rigs.
Longer Term Supply Requires Access To Restricted Areas
Maintaining or increasing OCS natural gas supply
in 2020 and later will require early access to currently restricted
areas. The projections above show declines beginning in 2004 to
2006. These would be even greater if historical increases in decline
rate were included. Availability of less mature areas would add
potential for higher reserve, lower decline rate wells to add needed
production after 2005.
The effect of access in one estimate can be seen
by comparing the EIA Access Case with the EIA Base Case in figure
1. The Access Case assumes offshore moratoria are lifted in 2007.
Under this scenario, significant increases in production compared
to the Base Case are seen beginning in 2010.
OCS production can reach 6.5 TCF/year by 2010, near
the average of current forecasts, but substantially increased drilling
activity will be necessary to achieve this increase. Higher rates
will require even more drilling.
Absent an increase in industry activity, production
in the Gulf of Mexico will likely remain near 5 TCF/year.