Energy industry beginning to feel shutdown’s bite

WASHINGTON — With the federal government shutdown in its 10th day and scant hope for a speedy resolution, the energy industry is just beginning to feel the pinch.

While the government is still issuing offshore drilling permits at its usual pace, similar approvals for onshore oil and gas wells on public lands have ground to a halt. The Bureau of Land Management has already canceled an Oct. 16 auction of oil and gas leases in New Mexico, with the prospect of more to come. And government data about the nation’s oil and gas stockpile is about to stop flowing, leaving crude traders and analysts in a lurch.

The effects of the shutdown on oil and gas companies and contractors are relatively small now but could compound over time, analysts and industry representatives said.

“The longer it goes, the more likely we’re going to see impacts,” said David Pursell, head of securities for Houston-based Tudor, Pickering, Holt & Co. “The quickest impacts will be onshore, but if it’s prolonged, you could definitely have some issues in the offshore as well.”

Some energy and environmental agencies have been able to draw on reserve funds to keep running, but will soon close their doors.

For instance, the Nuclear Regulatory Commission said it would cease its non-essential operations on Thursday, though inspections will continue.

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The Federal Energy Regulatory Commission, which regulates power lines and pipelines, has been somewhat insulated from the shutdown so far, but the agency could send workers home whenever carryover funds run out. It’s unclear when that might happen, said FERC spokeswoman Mary O’Driscoll.

“We’re operating, but it’s unclear how long we will be able to do it,” O’Driscoll said. “I’m sure we’ll be here the rest of the week. I don’t know how long next week.”

“We could be here the full week and even the full following week,” O’Driscoll added. “It’s just very unclear at this point.”

From the White House to Capitol Hill, Democrats have been highlighting the damage the shutdown could cause the energy sector, as they press House Republican leaders to advance “clean” bills to fund the government and raise the nation’s debt limit without tackling other issues at the same time.

“Republicans say they’re very concerned about drilling,” said President Barack Obama, in a news conference Tuesday afternoon. “One of the things that happens when the government shuts down is new drilling permits aren’t processed. So why would the Republicans say to the folks who are interested in drilling for oil, ‘Sorry, we can’t let those things be processed until we have some negotiations?’ ”

Harming ‘energy renaissance’

Sen. Ed Markey, D-Mass., released a lengthy analysis concluding that the shutdown would slow production of both fossil fuels and renewable power, which have “been a bright spot in our economic recovery.”

“This shutdown won’t stop the wind from blowing or the sun from shining, but it will hit the pause button on our efforts to continue this American energy renaissance,” Markey said.

Most onshore oil and gas production is happening on private lands, with little federal government involvement. But the shutdown could affect future operations for energy companies, drilling contractors and oilfield service firms working on public lands.

The Bureau of Land Management has stopped processing drilling permits and holding lease sales. The agency announced Tuesday it was postponing its Oct. 16 lease sale in New Mexico, and a spokeswoman said the bureau is “evaluating upcoming lease sales on a day-by-day basis.”

Planned sales on the horizon that could be affected include an Oct. 22 auction of drilling rights in Montana and November sales of territory in Alaska, Colorado and Utah.

Onshore oil companies used to delays

Oil industry representatives said companies that operate wells on public lands are accustomed to the delays.

“Generally, a few weeks of government shutdown are minor compared to the two years it takes to get a lease, three to nine years to get through the environmental analysis and hundreds of days or even years to get a permit,” said Kathleen Sgamma, vice president of the Western Energy Alliance.

The impact of the onshore permitting halt may be lessened in the short term, because many companies working there generally try to have several permits in hand to ensure they have work for rigs under contract, Sgamma said.

But Sgamma said some companies anticipating permits for near-term development may be disappointed, and, “the longer the shutdown continues, the more such situations arise.”

It’s not just oil and gas drilling on public lands. As the shutdown continues, federal government permits could become a bottleneck for other energy projects, from aspirations to widely export natural gas or build new wind farms.

“A prolonged shutdown will slow any business that requires permits or approvals,” said Denise Bode, a former Oklahoma corporate commissioner and the previous head of the American Wind Energy Association. Although “essential regulatory matters are still being handled,” she said, “If your issue is not considered critical or not being handled by an ‘essential employee,’ then you should care about a speedy resolution.”

Drilling is a moneymaker

Oil and gas industry allies have seized on the shutdown to tout the economic benefits of drilling and production.

“In the midst of a shutdown with a federal government that has again reached its debt limit, we would be remiss not to point out that federal production can yield tens of billions of dollars for the federal treasury in the years ahead,” said Robert Dillon, spokesman for Republicans on the Senate Energy and Natural Resources Committee.

Jim Noe, a vice president of Hercules Offshore and head of the Shallow Water Energy Security Coalition, stressed that offshore production is a moneymaker for the federal government.

“Offshore production does not cost the federal government one penny, but rather contributes money every year to the federal treasury,” Noe said. “The U.S. treasury collects at least $5 to $6 billion annually from energy production in the Gulf of Mexico alone, making it one of the largest revenue streams for the federal government.”

Pursell said he hasn’t seen evidence of panic from energy companies yet. But he predicts some industry analysts and oil traders will take notice as soon as next Wednesday, when the Energy Information Administration doesn’t push out its usual assessment of the nation’s oil and natural gas inventories. Monthly reports on demand _ which are used by the International Energy Agency for its own reports _ also will stop flowing.

The EIA has been able to tap carry over funds to keep operating only through Oct. 11.

“The weekly inventory numbers are leading indicators of whether we are oversupplied or undersupplied,” Pursell said, calling them “very important to commodity markets.”