UPDATE 1-MMS cuts U.S. Gulf oil 2018 output forecast

(Adds byline, natural gas outlook, details, background, changes slug)

By Bruce Nichols

HOUSTON, May 4 (Reuters) - The U.S Minerals Management Service has cut its forecast for Gulf of Mexico oil output over the next 10 years by 300,000 barrels per day (bpd) to between 1.6 million and 1.9 million bpd, the agency that regulates offshore oil development said on Monday.

In an annual update of its 10-year production forecast, MMS also said natural gas production will resume its long-term decline after an uptick to more than 7 billion cubic feet per day this year.

Technical and geological challenges of offshore development, particularly in deeper water, have slowed some projects, contributing to the ratcheting back of the forecast, officials said.

They said the economic recession and resultant decline in oil and gas prices have not yet affected offshore projects, which tend to have long lead times. But that could change, officials said.

"We could start seeing deepwater exploration and development affected if it's a long downturn," said Lars Herbst, MMS Gulf region director.

Hurricanes Gustav and Ike in 2008 interrupted production, but they did not affect long-term offshore production trends, the report said.

The range of forecast from 1.6 million to 1.9 million bpd by 2018 reflects the difference between companies' firm production commitments and projected potential of discovered and undiscovered resources, the MMS report said.