US crude output expected to rise

US crude oil production is expected to rise this year for the first time in nearly two decades, buoyed mostly by new offshore projects in the Gulf of Mexico but also getting a boost from a so-far quiet Atlantic hurricane season.
Last year, hurricanes Ike and Gustav forced oil and gas companies to shut down wells and evacuate workers from offshore facilities, resulting in 63 mm barrels of lost oil production. This year, the government predicts only 3.4 mm barrels of outages due to Gulf storms, although hurricane season is still far from over.

US oil output is benefiting from the addition of major deep-water fields, including BP's Thunder Horse, that are helping offset production declines onshore and in shallower Gulf waters. In many cases, these deep-water fields were discovered years ago but are only now coming on line, given the massive costs and technical challenges associated with them.
The combination of favourable factors should lift US crude oil production to an average of 5.22 mm bpd in 2009, up from 4.95 mm bpd last year and the first annual increase since 1991, according to the US Energy Information Administration.

And the trend may continue beyond 2009, said Bob Fryklund, oil analyst with IHS-CERA in Houston, noting a queue of deep-water Gulf discoveries that will be coming onstream soon.
"For the next couple of years, oil production looks like it will be on an upward swing, which we haven't seen -- it's been a long time," he said.

The rise in domestic oil production highlights the growing contribution of deep-water fields in the Gulf, which until only recently were considered out of reach. It also comes as US natural gas production, which has been trending upward for several years, is slowing amid an unprecedented collapse in prices and demand, which has spurred producers to curtail output.
Since December, natural gas prices have plummeted from nearly $ 6 per mm Btu, recently hitting a seven-year low around $ 2.80, while crude oil prices have more than doubled to near $ 70 a barrel.

Yet it may be too early to call it a turning point for US oil. While deep-water fields, as well as emerging onshore fields like the Bakken oil shale play in North Dakota, are sure to become a bigger part of America's oil diet, they may not be enough to offset declining production elsewhere in the US nor will they help the country wean itself from foreign oil any time soon.
Rather, the newly productive fields probably will keep domestic oil production "flat to mildly increasing the next few years," said Rehan Rashid, industry analyst with FBR Capital Markets in Arlington, Virginia.

Bill Coates, president of North American oil field services at Schlumberger, suggested that would be progress.
"After 30 years of decline, even a stabilization of oil production is a neat thing to see for the country."

US oil production has increased this year despite a global recession that has forced oil companies to slash spending on projects. In the first seven months, the country has averaged 5.26 mm bpd, the highest for the January-to-July period in four years, according to the American Petroleum Institute, an industry group.
During that time, production began or reached capacity in a number of new fields in the Gulf of Mexico, including Thunder Horse, Blind Faith, Thunder Hawk, Shenzi and Tahiti. They are now contributing roughly 500,000 bpd of additional oil production.

But Matthew Snyder, lead Gulf of Mexico analyst for Wood Mackenzie in Houston, noted that oil production was also on track to be up in 2008 before Gulf Coast hurricanes hit in September. He cautioned that the same thing could happen again.
"We're really right in that time frame right now," he said.

Hurricane season, which begins June 1, enters its peak in August and September, according to the National Oceanic and Atmospheric Administration. Yet in August, the federal office lowered an earlier forecast. It now predicts a 50 % chance of a "near-normal" season and a 40 % chance of a below-normal season.
An average season comprises 11 named storms with winds of at least 39 mph, of which six become hurricanes, with winds of 74 mph or greater, and two become major hurricanes with winds of 111 mph or higher.

The Gulf accounts for about 25 % of domestic oil production and 15 % of natural gas output through about 3,800 offshore production platforms, according to the US Minerals Management Service.