Daily on Energy: House Democrats take on industry with mining royalties

The Natural Resources Committee’s portion of the $3.5 trillion reconciliation package establishes a hardrock mineral royalty of 8% for new mines and 4% for existing ones, which Democrats say could raise around $2 billion over 10 years.

Expect this to be a major point of tension between Democrats and Republicans when the committee marks up the roughly $31 billion bill tomorrow morning. Most hard rock mining occurs on public lands in the West.

The mining industry is warning the royalty overhaul is at odds with the Biden administration’s professed interest in backing domestic mining to help meet the growing demand for critical minerals created by aggressive adoption of electric vehicles and renewable energy.

“As the administration is talking about the importance of reshoring domestic supply chains and underpinning the transition to electric vehicles, this is fundamentally alarming,” Rich Nolan, CEO of the National Mining Association, told me of House Democrats’ proposed new royalty on hardrock mining.

But Democrats say the royalty rate would be targeted to the broad swath of all hard rock minerals, including things that are not critical minerals, such as copper, gold, and silver. And mining companies currently don’t pay any royalties, unlike other extractive industries such as oil and gas, making it a matter of fairness.

The law governing how these materials are mined on public lands is nearly 150 years old, committee Democrats note.

“We are going to need more of certain minerals, there is no doubt about that, and some of that can and should come from the United States,” committee Democrat Rep. Jared Huffman of California told me. “But we shouldn’t let garden variety mining use these things as a pretext. I have heard the other side of the aisle say everything from water and gravel should be considered a critical mineral and be given favorable treatment. That is just not credible.”

Compromise sought: Nolan said the Senate-passed bipartisan infrastructure bill, by contrast, features a concerted effort to increase production and reduce barriers to mining of critical minerals by speeding environmental reviews, for example. He said the mining industry is open to a compromise with the more moderate Senate setting a royalty rate on hardrock mining, but he argued the levels targeted by House Democrats are “incredibly uncompetitive.”

While he acknowledged it’s true that hard rock mining produces a lot of minerals that are irrelevant to the clean energy economy, he said miners have to go through base metals to reach “co-located” critical minerals or rare earths.

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BIDEN LOOKS TO ASSUAGE UKRAINE’S CONCERNS ON NS2 DEAL: During a meeting with President Volodymyr Zelensky of Ukraine this afternoon, Joe Biden will look to address the country’s concerns over a deal the U.S. made with Germany enabling the finishing of Russia’s Nord Stream 2 natural gas pipeline.

As part of the deal announced in July, the U.S. and Germany pledged to ensure Ukraine continues to receive roughly $3 billion in annual transit fees for natural gas Russia pays under an agreement with Kyiv that expires in 2024.

U.S. and Germany also committed to hold Russia accountable, including with sanctions, if it elects to use Nord Stream 2 as a geopolitical weapon and commits aggressive acts against Ukraine.

But Ukraine protested their exclusion from U.S. negotiations with Germany about the controversial energy project and said their promises aren’t sufficient to effectively limit the threats created by Nord Stream 2.

Making good on the deal: Senior Biden administration officials told reporters in a call ahead of the Biden-Zelensky meeting that the U.S. has “been working across a number of fronts to try and address Ukraine’s concerns.”

The U.S. and Ukraine will launch a Strategic Energy and Climate Dialogue led by the Department of Energy that aims to help Ukraine reduce its dependence on Russian gas by promoting the use of renewables and other low-carbon energy while helping Ukraine strengthen its energy security.

The Biden officials also noted the State Department recently appointed Amos Hochstein as senior advisor for energy security, where his focus will be working with Ukraine, Germany and other regional partners on maintaining Ukraine’s transit role and security of natural gas supply.

RELATED…US NUCLEAR REACTORS COMING TO UKRAINE: Also yesterday, U.S. nuclear manufacturing company Westinghouse and Energoatom, the state-owned nuclear utility of Ukraine, signed an agreement providing Westinghouse AP1000 reactors to multiple plants in Ukraine.

The signing of the agreement, touted as a way to diversify Ukraine’s clean energy mix, occurred as Zelensky met with Energy Secretary Jennifer Granholm.

MOST OF NEW ORLEANS FACING WEEKSLONG POWER OUTAGES: Power returned to some parts of hurricane-battered New Orleans this morning, but 1 million people still face weekslong outages as high temperatures threaten the region, the Washington Examiner’s Jeremy Beaman reports.

Entergy, the utility company providing electricity to much of the city, said its crews turned the power back on for an unspecified number of customers in eastern New Orleans through the New Orleans Power Station. But the full restoration of power to the region “will still take time,” the company added.

Thousands of workers continued to assess the extent of damage to electricity infrastructure yesterday, days after Hurricane Ida smashed into the Gulf Coast on Sunday as a Category 4 storm, knocking out the company’s eight transmission lines with its 150 mph sustained winds.

The company held off on offering estimates of power restoration to specific neighborhoods in its update today and notified customers that damage assessments must be completed first. The destruction of its transmission lines, including the toppling of a 400-foot transmission tower on the bank of the Mississippi River, led Entergy to put initial estimates of power restoration at up to three weeks for those in the worst-hit areas.

High summer temperatures are compounding the risks to residents posed by the continued blackout. The National Weather Service issued a heat advisory for the New Orleans area for the second straight day, with heat index values forecast to reach 108 degrees.

SLOW COMEBACK FOR OIL AND GAS…NATIONAL SHORTAGES UNLIKELY: Seven refineries in Louisiana remain shut down, accounting 9% of the total U.S. refining capacity, while 94% of oil and natural gas production in the the Gulf of Mexico remained shut-in as a result of Hurricane Ida.

That’s according to the Energy Department’s latest “situation report” issued this morning.

Damage assessments are underway at some refineries, but operations can’t restart until feedstock supply and power are restored. Most refineries are expected to be back online within three weeks, the research group IHS Markit projected today.

But refinery and oil and gas shutdowns are not anticipated to cause any immediate supply issues, the Energy Department said, because Gulf Coast stocks of gasoline and diesel are above or essentially in line with the five-year average.

There are local shortages of course: A significant number of gas stations in New Orleans and Baton Rouge remain without fuel, according to GasBuddy data, likely as a result of power outages at the stations.

The data shows 52.7% of gas stations lacked fuel in Baton Rouge, and 52.3% in New Orleans as of this morning.

The national average price of gasoline jumped nearly 3 cents a gallon yesterday to $3.18/gallon, tweeted Patrick De Haan of GasBuddy.

US OIL DEMAND REACHES NEW HEIGHTS: U.S. oil demand jumped for the third straight week, surpassing pre-pandemic levels, the Energy Information Administration said today in its Weekly Petroleum Status report.

Oil demand rose to 22.8 million barrels per day from 21.8 million barrels p/d the week prior, a level that is 6% higher than the same week in 2019.

In fact, analysts at ClearView Energy Partners deemed the demand for last week to be the highest weekly total collected by EIA since 1990.

In a note, ClearView said the record weekly demand could be due in part to stocking up on fuels across the supply chain ahead of Hurricane Ida.

BIDEN ADMINISTRATION ANNOUNCES NEW OIL AND GAS LEASE SALES: The Biden administration filled in the blanks yesterday on its assurance that it is restarting oil and gas leasing on federal lands and waters as it complies with a court order that found its pause on new auctions to be illegal.

Interior’s Bureau of Land Management announced yesterday it is proposing several onshore leases encompassing more than 96,000 acres for parcels in Alabama, Colorado, Mississippi Montana, Nevada, New Mexico, North Dakota, and Oklahoma.

Also, the agency’s Bureau of Ocean Energy Management said yesterday it will proceed on an offshore oil and gas lease sale in the Gulf of Mexico in the fall of this year, offering almost all available, unleased blocks in a more than 90 million acre area.

Erik Milito, president of National Ocean Industries Association, the offshore energy industry trade group, welcomed the resumption of the Gulf lease sale, which he said “adds certainty to Louisianans “jobs and livelihoods” as the state recovers from Hurricane Irma.

Beware of slow-walking: Analysts from ClearView are skeptical the Biden administration will actually conduct the lease sales on schedule, saying in a note that Interior could still suspend sales if it wins its appeal of the court ruling, and could still draw out environmental reviews or impose terms that might make the sales less attractive to potential bidders.

The announced onshore sales likely won’t occur until February and March of 2022, after comments and environmental reviews occur.

By that time, Democrats could pass reforms to leasing as part of their reconciliation package raising costs on producers and imposing stricter regulatory requirements.

DON’T FORGET ABOUT INDUSTRIAL EMISSIONS IN RECONCILIATION: Environmental, industry, and labor groups sent a letter to Democrat congressional leaders this morning urging them to include at least $15 billion of investments in the reconciliation package aimed at reducing emissions from the hard-to-decarbonize industrial sector, which is responsible for more than a quarter of U.S. emissions.

The groups, led by American Council for an Energy-Efficient Economy, the BlueGreen Alliance, and United Steelworkers, say Democrats should enable the Energy Department to co-fund the first three commercial-scale applications of “transformative” industrial processing technologies that would represent lower-emissions approaches to producing materials in heavy industries such as steel, aluminum, chemicals, glass, cement, pulp and paper, and food manufacturing.

TREASURY LOOKS TO ADDRESS CLIMATE RISKS TO INSURANCE MARKETS: The Treasury Department launched a new effort yesterday to assess the potential for disruptions of private insurance coverage in areas of the U.S. that are particularly vulnerable to climate change.

Treasury is soliciting public comment on topics like data needed to measure and assess the insurance sector’s exposure to climate risks and “climate-related issues or gaps in the supervision and regulation of insurers.”

“Ensuring that consumers have adequate information, and that the insurance industry is appropriately assessing climate-related financial risk is essential as we work to address the climate crisis,” said Treasury Secretary Janet Yellen.

The Rundown

Bloomberg Hot and hungry, New Orleans will be in the dark for days

Washington Post Louisiana power outages renew questions about utility giant’s preparedness for storms

Wall Street Journal Energy traders see big money in carbon-emissions markets

Chicago Tribune Energy policy overhaul clears Senate

Calendar

WEDNESDAY | SEP. 1

12:30 p.m. The Nuclear Innovation Alliance will hold a webinar event for the release of the new NIA resource, “Advanced Nuclear Reactor Technology: A Primer.”

1 p.m. The House Select Committee on the Climate Crisis will hold a virtual briefing on the IPCC’s 6th Assessment Report.

THURSDAY | SEP. 2

10 a.m. The House Natural Resources Committee will hold a remote markup of its reconciliation bill.