As the deepwater Gulf of Mexico (GOM) matures, it will become increasingly difficult to offset natural gas production declines on the shelf, which “may imply a more severe U.S. gas production decline” than now estimated, according to an analysis by Southwest Securities’ John Gerdes.

An analysis suggests that natural gas production from new U.S. deepwater GOM projects in 2004 “should be about 0.14 Bcf/d greater than 2003.” However, a “marked falloff in incremental deepwater GOM gas production could imply a more severe U.S. gas production decline in the second half of 2003 than our current modest 0.7% per quarter sequential decline estimate.”

For the full year, “we likely will increase our 2003 production decline estimate from 2.1% to 2.5%.”

Gas production in the Gulf deepwater rose on average 0.4-0.5 Bcf/d per year from 1995-2002, said Gerdes. And, the analysis “suggests…production should grow 0.2 Bcf/d in 2003 followed by 0.3 Bcf/d growth in 2004.”

However, growing deepwater production “was able to offset the decline in shelf production through 2001, although since 2001, moderating growth…and a sharper decline in shelf production has led to an overall drop in GOM gas output.” Even though the sharp decline from 2002 “should moderate this year, it does not appear that deepwater…growth can fully offset the decline in shelf production.

“That said, next year we expect the decline in overall GOM output to slow 0.1-0.2 Bcf/d which provides part of the explanation for our overall U.S. gas production decline estimate of 2% next year versus a likely 2.5% decline this year.”

Producers weighted to natural gas that have “minimal, or no exposure” to the GOM supply basin “should disproportionately benefit from a tighter gas market resulting from declining GOM production,” said Gerdes. The companies included on Southwest Securities’ list are XTO Energy, EOG Resources and Burlington Resources.

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