Democrats reach agreement on budget bill with package of oil and gas provisions

The senses. Joe Manchin (DW.Va.) and Chuck Schumer (DN.Y.), along with several other Democrats, reached an agreement July 27 on a “budget reconciliation bill” with far-reaching provisions for oil and gas companies that be costly, but also aim to keep development opportunities available on federal lands.

If the bill becomes law, its higher taxes and royalties on federal lands won’t be welcomed by companies, but it will renew oil and gas leases in the federal offshore starting this year.

A budget reconciliation bill cannot be blocked under Senate rules, meaning the deal can pass the chamber if all 50 Democrats vote in favor and Vice President Kamala Harris is willing to break. equality if every Republican opposes it.

President Biden said he would support the bill, and Democratic members of Congress hailed it, although as of July 28 most of them had still not read the entire text.

“It’s important that we see all the details before declaring victory,” Rep. Raul Grijalva (D-Arizona) said.

The 725-page bill was renamed the Cut Inflation Act of 2022 in recognition of Manchin’s concerns over high spending and inflation. It would pledge to spend $369 billion on various energy and climate provisions, in particular to expand subsidies for wind and solar power and electric vehicles, but also for measures such as methane monitoring. It would spend $300 billion on federal debt reduction.

That would raise $739 billion through various tax provisions, including a minimum tax of 15% for the largest corporations — “businesses of $1 billion or more,” Manchin said. This would increase Superfund taxes on crude oil and petroleum products, and increase federal oil and gas royalties, rents and minimum bids.

The bill has been sent to the Senate parliamentarian for consideration. Schumer said he expects the Senate to vote on it the first week of August.

Higher costs

The bill would increase minimum royalties for federal offshore oil and gas to 16.67% from the current 12.5%, and for 10 years would include a maximum of 18.75%, after which the cap would expire.

The bill would revise the mining lease law for federal onshore royalties to raise the minimum rate to 16.67% from its current 12.5%. This would eliminate non-competitive leasing. There should be a minimum bid of $10/acre rather than the current $2. Annual rents, currently $1.50/acre, would increase to $3 for 2 years, then $5 for 6 years, then $15 thereafter.

This would add a new $5/acre fee to cover the cost to the Department of the Interior of responding to expressions of interest from oil and gas companies for areas to explore.

This would require royalties on all natural gas extracted, including vented, flared or leaked gas, with exceptions for safety reasons.

It would establish a “waste emissions charge” for methane emissions from offshore and onshore oil and gas production, underground natural gas storage, onshore gas processing, onshore gas transmission compression, liquefied natural gas (LNG) storage, LNG import and export equipment, onshore oil and gas gathering and strengthening and onshore gas transmission pipelines.

The methane charge would be calculated for 2024 by multiplying by $900 the number of metric tons of gas emitted above an annual threshold. For 2025, the multiplier would increase to $1,200, and thereafter the multiplier would be $1,500. The annual thresholds vary according to oil production, gas production and gas transportation.

Offshore lease sales

The bill would deal with unfinished business from the last 5-year offshore leasing program.

Lease 257’s sale took place on November 17, but its leases were never assigned because a federal judge invalidated the sale. The bill would reinstate the sale and require Interior Secretary Deb Haaland to accept the highest valid bid for each plot.

Lease sales 258 and 259, canceled by the Biden administration, would be held no later than December 31, in accordance with the January 17, 2017 minutes of decision on the five-year plan. The sale of lease 261 should be completed no later than September 30, 2023.

An unusual provision in the bill would tie offshore wind leasing to offshore oil and gas leasing. Although the bill would strongly favor wind energy, it would not authorize the issuance of an offshore wind lease unless at least one offshore oil and gas lease sale has taken place during the lease period. a year prior, and unless the oil and gas lease in that year period covered no less than 60 million acres.

The 60 million acres would represent the majority of the area of ​​the central and western Gulf of Mexico lease planning areas.

Allow concerns

The budget reconciliation process requires that all provisions relate directly to federal expenditures or revenues. Manchin worried about the pitfalls of infrastructure permits, especially for gas pipelines, but the permitting issues are not fiscal in nature. He contented himself with assurances of action in the near future.

In his announcement of the budget deal, Manchin said Biden, Schumer and House Speaker Nancy Pelosi “are committed to advancing a series of common-sense permit reforms this fall that will ensure that all energy infrastructure, from transmission to pipelines and export facilities, can be efficiently and responsibly built.He spoke about it in the context of energy security.

“Let me make it clear that I will not be voting to support policies that make the United States more dependent on foreign energy and supply chains or risk bringing the country closer to the unstable and vulnerable European energy model we are witnessing. today,” Manchin said. .

“It is essential that we reform the broken authorization process,” he said.

Grijalva expressed concern July 28 that permit changes could weaken environmental and public health protections. It was a warning that the leaders’ pledge could meet resistance in the fall.

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