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(A Non Issue Now, Interesting for Another Day): For Oil And Gas, The Government Shutdown Is A Near Non-Event

01/29/2018 9:47 AM | Anonymous member (Administrator)

Given that the nation's news media was focusing about 23 out of every 24 hours each day on breathless reports about the "shutdown" of some small percentage of the federal government, some of you may be wondering how this "shutdown" is going to impact the oil and gas industry.

The short answer to that question is "not much." A longer and more detailed answer follows.

Upstream operating companies are going to continue to drill and frac and produce oil and natural gas from their wells, just as if nothing has happened in the nation's capital. All of their people are going to keep having to show up for work on each and every business day. This will disappoint some of them, but most will be pretty happy about continuing to receive their paychecks.

The oil and natural gas from those hundreds of thousands of wells will continue to mostly flow into pipelines, although a small percentage of the oil will keep getting transported via thousands of trucks or rail cars. Yes, the railroads will keep running, and the nation's interstate highway system remains open, despite the catastrophic impressions you may be getting from the myriad sensational reports on the various cable news networks.

Pipeline companies will continue receiving and moving all the oil and gas that fuels the preponderance of our nation's economy, just as they do when 100% of the federal government is open.

LNG export facilities will continue liquefying some of that natural gas and putting it on ships, which will continue to export that LNG to international markets. The remainder of that natural gas will continue to be delivered to local distribution companies for home heating, power plants for the generation of electricity, and manufacturing facilities that use natural gas as a feedstock for the production of a vast array of products we all use in our everyday lives.

Most of that crude oil will continue to be taken by the nation's refineries and turned into the gasoline, diesel and other petroleum products that drive our country's transportation sector. A growing portion of it will continue to be loaded onto tanker ships and exported onto an increasingly competitive global market.

In other words, even though the oil and gas industry is heavily regulated by the federal government, it remains a private enterprise  , and as such, its operations will hardly be impacted in the near term by this partial federal shutdown.

Now, if this shutdown goes on for a long period of time, then some impacts would show up, mainly in the area of permitting  operations on federal and Indian lands, and in the federally controlled waters off the country's various coasts. The workers at the Interior Department who control the issuance of permits to drill and conduct other operations in the various federal and Indian provinces are not considered to be "essential" employees, and will not be reporting for work today.

But even this impact is likely to be quite minimal. Looking back through history, the longest period of time any government shutdown has lasted was 32 days, from December 5, 1995 through January 6, 1996. None of the others have lasted more than 18 days, and the vast majority of the 18 previous shutdowns have lasted less than a week.

The issuing of drilling permits and other approvals by the federal government is already an exercise in often interminable delays. The current shutdown is likely to only add a handful of days to what is already a long waiting game. Even adding 32 days would not end up creating a significant impact on operators on federal and Indian lands.

The issuance of permits related to the nation's interstate oil and gas pipelines will also be impacted, given that the Federal Energy Regulatory Commission (FERC), the agency that governs such permits, is not classified as an "essential" service. Again, just as with the Interior Department's permitting processes, the delays at FERC will equal the number of days the shutdown lasts. Given that the pipeline industry just ended a year during which FERC spent half the year without a quorum of appointed commissioners, a shutdown that will most likely last a handful of days pales in comparison.

For those worrying that the shutdown means that those bad ol' fossil fuel industries will be free to just pollute to their heart's content, well, no, that's not in the cards, either. The EPA was declared an "essential" service during the Clinton Administration, and thus, all of that agency's employees will still be reporting for work as normal.

So, at the end of the day, this partial government shutdown is very likely to show up on the oil and gas industry's books as a basic non-event. Now, if this shutdown were to set a new record for duration, that could change, and I'll come back and give you an update at that time. Somehow, I don't think that will become necessary. Just a hunch.

[Note: And just like clockwork, barely four hours after I posted this piece, the Senate agreed to end the government shutdown. Oh, well, it was a fun piece to write.]


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