An internal memo from the U.S. Interior Department suggesting that the agency set the highest possible royalty fee on potential oil and gas development before last year’s Cook Inlet lease sale is drawing blowback from the Democratic chair of the Senate Energy and Natural Resources Committee.
West Virginia Sen. Joe Manchin said in a statement he was “appalled” by the memo, which he said was leaked and prioritized a “radical climate agenda” over the energy needs of Alaskans and the U.S.
An Interior spokesperson said in an emailed statement on Friday that the memo was not leaked, but given to Manchin “at his request.” The spokesperson said the agency had no further comment.
The 24-page memo was written in November by Amanda Lefton, director of the Bureau of Ocean Energy Management, and is addressed to Laura Daniel-Davis, President Joe Biden’s nominee to be an assistant Interior secretary of land and minerals management. The Bureau of Ocean Energy Management oversees the federal offshore oil and gas leasing program.
In the memo, Lefton writes that while a 16.66% royalty would more likely support development in Cook Inlet and provide greater energy security and government revenue in Alaska, an 18.75% royalty would better balance environmental considerations and account for the social cost of upstream greenhouse gas emissions from oil and gas production. The memo notes that Cook Inlet is facing concerns about the future supply of natural gas that heats and powers homes across Southcentral Alaska.
“A lower royalty of 16 2/3 would also be expected to incentivize additional blocks receiving bids, increase bonus bids, and increase the chances of a discovery being developed,” Lefton writes. “If a Cook Inlet prospect would be developed, there would be additional government revenues and greater energy security for the state of Alaska, especially if development of natural gas resources in the Cook Inlet ameliorated the long-term supply challenges facing the Anchorage area.
“Nevertheless, because of the serious challenges facing the nation from climate change and the impact of (greenhouse gases) from fossil fuels, (the Bureau of Ocean Energy Management) is not recommending this option since it would not include an appropriate surcharge to account for those impacts,” the memo says.
Daniel-Davis signed off on the memo, approving the higher royalty fee for the sale. It was the highest possible royalty allowed under the Inflation Reduction Act, she wrote in the final decision for the lease sale.
“I have selected a royalty rate of 18 3/4 percent for Cook Inlet leases because this rate constitutes the most reasonable balancing of environmental and economic factors for the American public,” Daniel-Davis wrote in the decision. “By selecting a royalty rate of 18 3/4 percent, the maximum allowed under the (Inflation Reduction Act), I have adopted fiscal terms that may only have a slight impact on the number and price of bids submitted for the lease sale.”
“Long term, this royalty rate may result in less oil and gas development than would be expected with the 16 2/3 percent minimum rate,” Daniel-Davis wrote.
The Cook Inlet lease sale in December was required in last year’s giant Inflation Reduction Act by Manchin, who helped broker the deal that balanced traditional and renewable forms of energy development.
The Biden administration had initially canceled the lease sale.
In the end, the sale generated very little interest from the oil industry, with Hilcorp submitting only a single bid of $64,000 for one tract.
Alaska Republican Sen. Dan Sullivan on social media called the memo “shocking and disturbing.”
“Apparently the Biden administration’s climate zealots would rather manipulate prices and see Alaskans freeze in the winter from an energy shortage than conduct a lawful Cook Inlet lease sale,” Sullivan said.
Alaska Republican Sen. Lisa Murkowski also issued a statement Friday condemning the document, saying that “it shows a policy of working against domestic production, rather than promoting it. This administration may never feel the consequences, but Alaskans sure will, and that is completely unacceptable.”
Manchin said in his Friday statement that the action contradicts the will of Congress.
“The Inflation Reduction Act, which mandated this lease sale, is first and foremost an energy security bill,” Manchin said.
“But despite this fact, this administration continues to ignore congressional intent and instead panders to environmental groups at the expense of shoring up American energy security and keeping Americans safe,” Manchin said.
“I am appalled by its contents, which make crystal clear that this administration is literally putting their radical climate agenda ahead of the needs of the people of Alaska and the United States,” Manchin said of the memo.
The statement raises questions about whether Manchin will support Daniel-Davis’ nomination.
“I will not support anyone who agrees with this type of misguided reasoning,” Manchin said in his statement.
Manchin’s statement comes at a pivotal time for Alaska, with Interior Secretary Deb Haaland expected to decide as early as Monday whether ConocoPhillips will be approved to develop its $8 billion Willow oil prospect on federal land in Alaska.
The Willow project has generated immense pushback from conservation groups. Alaska’s congressional delegation has worked to highlight support for the project in many areas of Alaska, and met with the White House to urge its approval this week.
Sullivan and Murkowski, a moderate Republican who has also been a key vote for Democrats, have expressed concern about whether Willow will be approved. Democratic Rep. Mary Peltola, a key vote in a closely divided House, has also strongly urged the administration to approve Willow, citing Alaska’s economic struggles.