Shut Down Government (Photo credit: KAZVorpal)
At the time of this writing, it appears that congress and the White House are nearing an agreement that would raise the nation’s debt ceiling and end the 17% shutdown of the federal government. In the hope that does come to fruition, it’s instructive now to have another look at the ways in which the event did – and did not – impact the oil and gas industry.
Perhaps you’re sitting there thinking “Impacts? What impacts?” and if so, no one could blame you, given that the impacts that have taken place have hardly been visible to the general public. The average guy driving his car to and from work every day has had no problem stopping in at the local gasoline station to fill his tank, has had uninterrupted natural gas flow to heat his water and cook his food, and has seen no upward or downward impact to his monthly electricity bill as a result of the shutdown.
However, there have been impacts, mostly on permitting processes that are already glacially slow to begin with. Given that only 7% of EPA’s employees are considered by their own government to be “essential” (if you find irony in that reality, please take a number and move to the back of the line), that agency obviously hasn’t been issuing any air permits over the last couple of weeks.
Similar halts to the permitting processes have been experienced at the Department of Interior, which has permitting authority for drilling and development planning on federal lands and in federal waters. But as we pointed out a few weeks ago, these are minor delays considering these processes already take months and sometimes years to accomplish. So yes there’s an impact, but it's been limited, assuming the shutdown ends quickly. The delays will ultimately be subsumed within the general inertia of the respective bureaucracies.
A similar principle applies to the interstate pipeline business, which is regulated by the Federal Energy Regulatory Commission (FERC). Again, permitting personnel at FERC are not considered “essential” employees, so the permitting and approval processes within this agency have been suspended for the duration of the shutdown. And again, these permitting processes already take quite awhile to complete, so the delay from the shutdown will, in the long run, be a blip on the screen.
The other side of this reality, of course, has been that these same agencies have not been issuing new regulations during the shutdown, since the personnel who develop and issue such regulations are also somehow considered to be “non-essential” employees. Thus, a Federal Register that ran to more than 400 pages in early September ran only 10 pages in early October. After the regulatory frenzy we’ve seen in the last 4+ years, this has been a welcome relief for everyone. Well, to everyone, that is, except those in the anti-fossil fuel movement who view heavy-handed regulatory actions as a tool to slow or halt progress.
At the end of the day, proper regulation of the oil and gas industry is critical for everyone, including the industry. But over-regulation of it is counterproductive and only serves to create shortages and increase costs to the consumer. All one need do to understand this is witness what happens to gasoline prices every spring, when refiners are forced by the EPA to produce a buffet of dozens of boutique fuel blends that all must be delivered at specific times in specific quantities to specific locations. Or what happened to prices at the pump earlier this year when EPA refused to lower the artificial target volumes of heavily-subsidized corn ethanol to be blended into gasolines all over the country.
Consumers and many politicians like to blame “big oil” when the resulting price spikes occur, but the truth is this it your federal government at work. The same members of congress who invariably call for hearings into these ‘mysterious’ increases in gasoline prices support the heavy-handed regulatory structure that creates them.
All of which goes to explain why it is such a good thing that the upstream oil and gas industry is by and large regulated at the state level. Were it regulated mainly at the federal level – as the hyperbolic anti-fracking movement would like it to be – the Shale revolution that has taken place since 2007 would have never been allowed to get off the ground. The millions of jobs and hundreds of billions of dollars in economic activity that have resulted would have never been produced.
The economic miracle that has propped up the U.S. economy since 2009 would have been no miracle at all. The renaissance that low natural gas prices have created in a variety of U.S. manufacturing industries would not have happened, and all of those tens of thousands of new, high-paying jobs coming back to the United States would have remained overseas in places like India, China and South Korea. Home heating and electricity bills that have been cut in half in the last half decade would have remained at their previous levels or higher. The incredible sea-change in the global balance of power in the energy equation would not have taken place – the prior status quo would still exist, with Russia and the OPEC nations fully in control.
This is the difference between being regulated at the state level by state agencies who understand their various resources bases and stakeholder groups and can get permits issued in a matter of days, and being regulated in a command-and-control, one-size-fits-all manner that federal regulations inevitably become. As we mentioned a few weeks ago, it’s no accident that the shale revolution has taken place almost entirely on private and state-owned lands, and that federal oil and gas production has stagnated and fallen back at the same time.
If regulations in a given state are inadequate in some ways, the answer is not to demand regulation by the federal government, because the cost of doing that is too great. The answer, to those who want a healthy and vibrant economy, is to fix the regulations at the state level. If nothing else, this 17% shutdown has provided us with great clarity around that enduring truth.
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