Manchin deal on reconciliation bill mandates offshore oil and gas lease sales

Offshore staff

WASHINGTON, DC – The federal OCS leasing program may be revitalized under a breakthrough spending deal reached this past week by senators Joe Manchin and Chuck Schumer.

Under the Senate version of the Inflation Reduction Act of 2022, the federal government would be required to hold oil and gas lease sales in the Gulf of Mexico and Alaska.

In addition to nearly $370 billion to fight climate change, the legislation would require the Interior Department to hold previously planned – and canceled – lease sales in the Gulf of Mexico, including one that was slated to happen in March, according to the 725-page bill released on Wednesday.

The measure would also effectively reinstate the Gulf of Mexico lease sale that was held last November but was later invalidated by a federal judge. That ruling had found that the government did not sufficiently examine the climate consequences of the lease sale.

Under the legislation, the Secretary of Interior would be required to accept within 30 days the highest valid bids lodged in that sale, which was set to bring in $191.7 million.

In May, the Interior Department had said that it was scrapping all three auctions, citing a “lack of industry interest” for the sale of tracts in Alaska’s Cook Inlet and “conflicting court rulings” for the decision to nix two Gulf auctions.

The potential requirement comes on the heels of a Biden administration proposal for a five-year oil and gas leasing plan that included an option for no new offshore sales between 2023 and 2028. 

The provisions appear to be a concession to Manchin, a West Virginia Democrat who has complained the Biden administration is “blocking increased energy production at home” while encouraging more oil flows from Venezuela and OPEC producers.

In a statement on Wednesday, Manchin said the Inflation Reduction Act of 2022 addresses the nation’s energy and climate crisis by adopting commonsense solutions through strategic and historic investments that allow it to decarbonize while ensuring American energy is affordable, reliable, clean and secure.

“The need to balance all of these critical energy priorities is no longer open to debate given the energy threats we face,” Manchin said. The senator added that he supports a plan that will “advance a realistic energy and climate policy that lowers prices today and strategically invests in the long game. As the superpower of the world, it is vital [that] we not undermine our superpower status by removing dependable and affordable fossil fuel energy before new technologies are ready to reliably carry the load. This legislation ensures that the market will take the lead, rather than aspirational political agendas or unrealistic goals, in the energy transition that has been ongoing in our country.”

The deal would also impose higher fees on the oil and gas industry for developments on public land and waters. That includes requiring energy companies to pay royalties on all of the oil and gas produced on federal lands, including the methane that is vented, flared or otherwise escapes into the atmosphere.

It remains to be seen whether the underlying legislation, which also includes a slew of new and extended tax credits for clean energy and electric vehicles, will be backed by the full Democratic caucus in the 50-50 Senate. The full Senate will consider the bill this coming week.

The bill would also have to pass the House, where progressives have sought a much more expansive plan. 

07.30.2022