Potential US government shutdown unlikely to quickly impact current oil, gas output

A US government shutdown is not likely to immediately impact the the nation's oil and natural gas industry, but an extended halt to federal agencies' operations could eventually impact future production, according to their contingency plans and to industry sources.

The ability of the federal government to remain open over in the final days of 2024 was thrown into question Dec. 18, when President-elect Donald Trump made public his opposition to a three-month stopgap spending bill negotiated in recent months by both parties in Congress. Without a bill to fund ongoing operations, the government would shut down Dec. 21.

The impact of a federal shutdown is likely to be minimal, at least in the short term, as the Office or Management and Budget divides operations and personnel between "essential" and "non-essential" categories. According to the OMB's most-recent contingency plans, published amid the threat of a shutdown in September 2023, essential operations at the Bureau of Land Management -- which oversees oil and gas production on federal lands and waters -- would include routine safety inspections carried out by bureau personnel that allow ongoing drilling operations to continue.

The same would be true at the Bureau of Ocean Energy Management, which regulates energy production offshore. Companies would also continue their regular compliance reporting to the relevant agency.

A spokesperson for the BLM referred a request for comments from S&P Global Commodity Insights to the agency's contingency plan, while spokespeople for BOEM and the White House did not respond to queries for comment.

Independent oil and gas producers, for their part, will continue complying with federal reporting requirements, rules and regulations as usual in the event of a government shutdown, Independent Petroleum Association of America spokesperson Jennifer Pett Marstellarsaid Dec. 19

"It is our hope that there are no permitting processing or lease sale delays by the government, as that would impact already backlogged systems and could impact future production," Marstellar in an email.

Permitting concerns

Were the shutdown to drag on, though, it could impact the speed of permitting and the sale of new leases. Among the employees considered non-essential by OMB's guidance are those who manage leasing and permitting on federal lands, as well as those who work to develop the five-year National OCS Oil and Gas Leasing Program for offshore waters.

In September 2023, in advance of an eventually averted government shutdown, Western Energy Alliance President Kathleen Sgamma said US President Joe Biden's Interior Department did not need an "excuse for delaying and preventing approvals on federal lands and waters."

"Companies with active operations on federal lands must be in regular communication with Bureau of Land Management personnel to react to changing situations on the ground," Sgamma said in a statement at the time. "When there's nobody on the line at local field offices to answer a question or approve operational changes as they arise, companies cannot safely and effectively move forward with energy development. Even the threat of a shutdown causes hiccups in the system and contributes to the chronic uncertainty that plagues production on federal lands."

Sgamma could not be reached for comment Dec. 19.

The Petroleum Association of Wyoming, which represents producers in the second-largest state for oil and gas production on federal lands, urged BLM to continue permitting even in the event of a shutdown.

"Given Wyoming's place as the second-largest producer of both natural gas and oil on federal lands it is imperative the federal permitting process continues in the case of a federal shutdown," Vice President Ryan McConnaughey said in an email.

"The BLM's federal mineral program is the second largest driver of federal revenues for the federal government, after the IRS, and more than covers the costs associated with the permit approval process as was shown during the last shutdown in 2019," McConnaughey continued. "Any attempts to shut down the program in the event of a shutdown on Friday will be nothing more than Washington political theater that would jeopardize the state's economy and harm Wyoming communities."