Gas Production: Things Aren't What They Used to Be

September 2012

• So far in 2012, offshore production of natural gas from the Gulf of Mexico accounts for roughly 6% of total marketed production. This percentage has been decreasing continuously over the last several years.
• The decline in offshore production rates for natural gas has occurred during a boom in onshore production, driven largely by shale gas extraction.

As the storm that was to become Hurricane Isaac churned through the Gulf of Mexico, natural gas prices fell. Traditionally, storms moving through the Gulf production zone cause prices to increase, if only in the short term. Very significant storms like Hurricanes Katrina and Rita had a major price impact, given the significant amount of production capability damaged by the storms. Certainly, Isaac was nothing compared to Katrina and Rita in terms of storm severity, but there is another reason why Isaac was a non-event.

So far in 2012, offshore production of natural gas from the Gulf of Mexico accounts for roughly 6% of total marketed production. This percentage has been decreasing continuously over the last several years. It was 26% in 1997, 16% in 2005 - the year of Katrina and Rita, and 11% as recently as 2008. The offshore Gulf share of production has been declining quickly, because the decline in offshore production rates has occurred during a boom in onshore production, driven largely by shale gas extraction. Daily marketed production in the US was 66 Bcf / d in 2011 compared to the average of 54 Bcf / d from 1997 to 2007.

The importance of the Gulf offshore in fossil fuel production is greater for crude oil, which has maintained a significant and relatively stable share of total US production between 1997 and 2012. The Gulf of Mexico's average share of total domestic crude oil production has been near 25% and the industry has experienced a less significant increase in production from new onshore sources than has been the case with natural gas. As the graph below shows, domestic crude oil production has been recovering to levels last seen 15 years ago with the upward production trend since 2008 partially a result of the shift in drilling activity from dry natural gas to crude oil, rather than discovery of new sources of crude oil.

The data suggest that the relevance of the Gulf of Mexico to natural gas markets is likely to continue to decline so long as exploitation of shale gas remains strong and the attendant pipeline networks are sufficient to connect supply with demand.

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