(Corrects Gulf of Mexico share in fourth paragraph to 'tenth' not 'fifth')
* Company reviews Mad Dog 2 expansion due to cost inflation
* Says too early to speculate when final plan will be approved
* Construction had been due to start by end of this year
* Analyst says delay of around 12 months is possible
By Peg Mackey and Sarah Young
LONDON, April 19 (Reuters) - BP is reviewing its biggest new oil project in the Gulf of Mexico, due to rising development costs across the industry, and could delay the $10 billion scheme.
British oil major BP said on Friday that rising costs made the current plan, under which construction would start this year, difficult to justify, becoming the latest company to reconsider the economics of a major project.
"The current development plan for Mad Dog Phase 2 is not as attractive as previously modelled, due largely to market conditions and industry inflation," it said in a statement.
The company wants to get its core Gulf of Mexico business, which accounts for around a tenth of its global output, back on track after the disastrous 2010 Macondo oil spill, which is still the subject of a court case in New Orleans.
It classes Mad Dog 2 as a "mega project", meaning it requires gross investment of more than $10 billion.
Construction of Mad Dog 2, set to become BP's biggest new oil development in the Gulf for a decade, had been scheduled to start by the end of this year and the company has said oil should start pumping by the end of the decade.
"BP fully intends to develop the resources at Mad Dog Phase 2 and is committed to moving forward with the right plan," it said. "It is too early to speculate when the details of the final plan will be approved by BP and its co-owners."
Elsewhere in the industry, cost over-runs prompted Woodside Petroleum to consider a different plan for its $45 billion Browse liquefied natural gas project in Western Australia in April.
France's Total said in March it was abandoning a multibillion-dollar oil sands project in Canada.
BP, in cooperation with co-owners Union Oil Company of California, a wholly owned subsidiary of Chevron Corp., and BHP Billiton Petroleum , is now evaluating how to develop the second phase of Mad Dog.
"I see it as a delay. I think it'll probably push back the final investment decision by, I would estimate, about 12 months," Macquarie analyst Jason Gammel said.
A tumble in the oil price, which is down nearly $10 a barrel since the start of this month, could also be weighing on BP's plans for the deep-water field.
The oilfield could contain up to 4 billion barrels of oil equivalent (boe). Mad Dog 2 involves building a second platform on the field and 33 subsea wells to exploit new discoveries.
Shares in BP traded up 1.1 percent, outperforming the European oil and gas index which was 0.4 percent higher. (Editing by Anthony Barker)