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THE PALLONE PLAN FOR THE SPR: House Democrats are getting creative with a new proposal that would graduate the Strategic Petroleum Reserve from being primarily an emergency store used to supplement global oil supplies during war- or storm-related supply disruptions to a market intervention tool meant to protect consumers any time prices are high.

Energy and Commerce Chairman Frank Pallone’s Buy Low and Sell High Act, introduced yesterday with support from eight of his fellow Democrats, seeks to give the Department of Energy and the president new authorizations to sell reserve oil any time prices exceed $90 per barrel, potentially making the kinds of interventions that have characterized President Joe Biden’s energy policy into a market fixture.

Riding the Biden wave: The bill would allow the president to designate an “Economic Petroleum Reserve” to subsist within the SPR and which could consist of no more than 350 million barrels of oil. The Energy Department would then be permitted to purchase domestically-produced crude oil sold at $60 per barrel or below to fill the “EPR” and then to sell the oil when WTI exceeds $90 per barrel.

Pallone said the bill was “designed to continue the trend of falling gasoline prices,” giving credit to Biden’s multiple and large-scale draws from the reserve for the falling oil and gas prices, and it would give an administration “the flexibility it needs to keep prices falling.”

A recent Treasury Department analysis suggested that Biden's emergency releases, in combination with the 60 million barrels made available by partners, may have been responsible for lowering the price of gasoline by between 17 cents to 42 cents per gallon this summer.

Price trigger vs. physical trigger: Raoul LeBlanc, vice president for energy with S&P Global Commodity Insights, said that for centering itself on price, rather than a shortage of physical volumes, the proposal could be an improvement upon current management of the reserve (Recall that Biden’s post-invasion justifications for drawing down the SPR were premised on there being major supply interruptions, or the potential that they could arise.)

“The only problem with [a physical trigger] is that the modern crude oil market is so flexible and fungible at redirecting volumes,” LeBlanc told Jeremy. “The notion that the U.S. will have a physical shortfall is pretty remote.”

The price trigger, which would lay out clearer ground rules as to where and when the government could intervene, could then take some of the political calculation out of the equation, LeBlanc mused.

“Before it was always a question of, well, should we intervene or not when there's no real mechanism,” he said. “So, it got to be a political football. This one at least has the possibility to depoliticize that.”

The bigger picture: Pallone’s bill, which would utilize revenues under the “buy low, sell high” scheme to fund electric vehicle programs, reflects what has been the larger inclination among Democrats during this high-price period to take command of fossil fuel energy markets — the windfall tax is another prominent example — and to prioritize intervention over the industry-preferred approach of encouraging more production first and foremost.

And many of Biden’s allies have seen a vindication in the falling prices, ascribing them to his interventions with the SPR rather than to concurrent factors like recession fears and higher average daily production volumes.

For Pallone, more intervention “helps us regain control of domestic gas prices and protects drivers from future price fluctuations.”

For LeBlanc, “Putting the government in as an actor in a very commercial, pretty mature, globalized sector — you can do it, and it may work, but it's certainly not as easy as it sounds.”

Welcome to Daily on Energy, written by Washington Examiner Energy and Environment Writers Jeremy Beaman (@jeremywbeaman) and Breanne Deppisch (@breanne_dep). Email [email protected] or [email protected] for tips, suggestions, calendar items, and anything else. If a friend sent this to you and you’d like to sign up, click here. If signing up doesn’t work, shoot us an email, and we’ll add you to our list.

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EU RACES TO INVESTIGATE NORD STREAM LEAKS AMID WARNINGS OF SABOTAGE: European leaders are racing to investigate potential acts of sabotage after both the natural gas pipelines linking it to Russia suffered inexplicable and sudden leaks—resulting in unprecedented damage as the bloc scrambles to transition away from Russian fossil fuels.

The leaks also dashed any hopes that Europe could still receive any additional gas via Nord Stream 1, the largest single supply line linking Russia to Europe, before winter.

The timing of the leaks was also significant, occurring just hours before a ceremonial launch of the Baltic Pipe, the natural gas pipeline linking Norway to Poland. The opening of the pipeline, which will bring Norwegian supplies through Denmark to Poland, is seen as a major step to mark the EU’s transition away from Russian gas.

Danish Prime Minister Mette Frederiksen said she “cannot rule out” sabotage in the leaks —two of which occurred on the Nord Stream 1 pipeline and the other on Nord Stream 2, which never opened for commercial operation due to Russia’s invasion of Ukraine.

“It is too early to conclude yet, but it is an extraordinary situation,” Frederiksen said. “There are three leaks, and therefore it is difficult to imagine that it could be accidental.”

Polish Prime Minister Mateusz Morawieck echoed this sentiment, saying at the opening ceremony for the new Baltic pipeline: "Today we faced an act of sabotage, we don't know all the details of what happened, but we see clearly that it's an act of sabotage, related to the next step of escalation of the situation in Ukraine.”

Though neither pipeline was operational at the time, both lines were filled with gas under pressure.

Ships were instructed to avoid the area, and the Danish Energy Authority declared a state of emergency over the leaks. Danish armed forces released videos and photos of the leak, the largest of which caused a surface disturbance of more than half a mile in diameter.

Natural gas prices in Europe climbed following the news. Though gas prices remain below the all-time highs seen earlier this year, prices are a staggering 200% higher compared to September 2021.

James Huckstepp, the head of EMEA gas analytics at S&P Global Platts, told the Financial Times that the leaks will exacerbate energy market uncertainty: “The probability of Nord Stream 1 coming back before the end of the year has essentially dropped from 1 per cent to 0 per cent.”

…Meanwhile, a group of EU countries is calling for a gas price cap in the proposed package of emergency energy measures. Supporters said the gas price cap could help curb “untenable inflationary pressures” that have touched off an affordability crisis within the bloc.

Signatories to the letter are asking the European Commission to bring up the price cap on wholesale gas prices for discussion at a meeting of EU energy ministers on Friday, and to introduce a legislative proposal “as soon as possible.”

“We have yet to tackle the most serious problem of all: the wholesale price of natural gas," a draft of the letter seen by Reuters read.

At least 10 countries plan to sign the letter, including Belgium, Italy, Poland, Malta, and Greece.

But others remain opposed to the idea of a gas price cap, making it unclear whether the effort will gain traction. Countries including Germany, the Netherlands, and Denmark have argued that a gas price cap could undermine the EU’s ability to attract new gas suppliers, and further threaten supplies this winter.

FAULT LINES GETTING CLEARER IN PERMITTING SCRUM: The Senate Appropriations Committee published text of a continuing resolution last night, which includes Sen. Joe Manchin’s Energy Independence and Security Act to reform federal environmental review and permitting processes and would fund the government until Dec. 16.

The inclusion of Manchin’s deal reflects some firm resolve from Majority Leader Chuck Schumer, as a significant share of congressional Democrats (at least 80 in the House and eight in the Senate) insisted against it, asking instead that it be taken up separately because of provisions designed to enable more fossil fuel projects.

Democratic Sen. Patrick Leahy, who chairs the Appropriations Committee, cheered the CR for providing to keep the government open but didn’t mince words about the Manchin-Schumer permitting deal, saying he was “disappointed that unrelated permitting reform” was attached to the CR.

“This is a controversial matter that should be debated on its own merits,” he said.

More votes shaking out: The permitting deal got a notable House endorsement last night from Rep. Sean Casten, a liberal Democrat of Illinois who formerly worked in the green energy sector and supports aggressive measures to mitigate climate change.

Casten all but said he would support the bill in a statement last night, mainly for its reforms to transmission siting and permitting.

Manchin’s bill is imperfect and provides “too much unnecessary support to an already-over subsidized fossil fuel sector,” Casten said. But “the current process to build the transmission desperately needed is arduous, expensive, and lined with bureaucratic red tape.”

“In order to meet our climate goals, and as renewable energy projects continue to become more economically viable, we must enact reasonable permitting reform,” he said.

Republican Sen. Richard Shelby, Leahy’s counterpart on Senate Appropriations, said on the other hand he won’t back any CR with permitting reform attached.

“If the Democrats insist on including permitting reform, I will oppose [the CR],” he said.

There are still plenty of votes to be worked out, and it’s unclear yet how many members who urged leadership to split up the measures will end up opposing it when it comes time to vote.

House Natural Resources Chairman Raul Grijalva, who is de-facto leader of that effort in the House, implied that the campaign had limits: “We start with the premise that no one involved in our effort is out there advocating, saying, ‘Let's shut down the government as a consequence of this bad deal,’” he told reporters last week. But “we have a bad deal.”

JAPAN’S RESTART OF NUCLEAR REACTORS WILL AID EUROPE, IEA CHIEF SAYS: International Energy Agency chief Fatih Birol said today that Japan’s restart of nuclear reactors will help ease Europe’s winter supply fears as it will free up more LNG for the global market.

Speaking at the International Energy Symposium in Tokyo, Birol said he is “delighted” to see Japan moving toward restarting its nuclear plants, a step announced by the country this summer.

"Restarting nuclear plants is good news for Japan, but also a big help for Europe during the winter," he said, adding: "If Japan restarts [more] nuclear power plants, Japan will import less LNG and more LNG will become available in the market, helping Europe survive for the next few months.”

Japanese Prime Minister Fumio Kishida said in July that he plans to bring up to 9 nuclear reactors online this winter to aid in the supply crisis—a step Birol noted on Twitter could free up more than 4 bcm of LNG for global markets.

IAN BARRELS TOWARDS FLORIDA: Florida began ordering mandatory evacuations of some coastal areas yesterday as it prepares for Hurricane Ian, which made landfall in Cuba early this morning as a Category 3 storm and is expected to intensify further before barreling onto Florida’s shores later this week.

Ian is expected to grow into a Category 4 storm this afternoon with 140 mph winds before hitting Florida as a “major” Category 3 hurricane, with effects expected to stretch far beyond where Ian ultimately makes landfall. It will be the first major hurricane to hit Florida since 2018.

At a press briefing this morning, Florida Gov. Ron DeSantis warned residents to expect power outages, floods, and disruptions to fuel supplies. “We were here 48 hours ago and most of the solutions had it going up the coast — the west coast of Florida,” DeSantis said. “Now most of them have it ramming into the state of Florida and cutting across and so just be prepared for that and understand that that’s something that could be happening.”

Ian is on track to grow wider and stronger after passing through Cuba, the National Hurricane Center said. “Preparations to protect life and property should be rushed to completion,” forecasters said on Twitter. “Today is your last day to prepare and follow evacuation orders from local officials.”

Regardless of where in Florida Ian makes landfall, significant coastal flooding is expected across much of the state, and roughly 2.5 million residents are under mandatory or voluntary evacuation orders. To that end, travel site Expedia has launched a new lodging information page for Floridians, providing those who are fleeing Ian’s path access to inexpensive lodging options and shelter.

FEDS PREPARING PLAN TO HELP FIX JACKSON’S WATER SYSTEM: EPA Administrator Michael Regan traveled yesterday to Jackson, Mississippi, to meet with federal and local officials currently working to help fix the city’s long-troubled water system, which failed in late August and left 150,000 residents without access to safe drinking water.

Regan said officials are working with the city to “deliver long overdue relief for Jackson residents.”

According to the EPA, some 300 boil water notices have been issued in Jackson over the past two years—most of which came before the crisis last month. “It’s clear this community has suffered long enough,” Regan said, describing the conditions as “unacceptable in the United States of America.”

The purpose of the meeting was to discuss how the U.S. government could better protect health in Jackson and address “longstanding environmental justice issues” in the city, a spokesperson told the Associated Press.

Congress is slated to consider a stopgap funding package later this week that includes disaster assistance for Jackson.

The Rundown

New York Times How New Mexico’s largest wildfire set off a drinking water crisis

Financial Times French hostility frustrates Spain’s gas pipeline dream

Bloomberg Dregs of Texas oil patch are more in demand than crude itself

Washington Post As wildfires grow, militaries are torn between combat, climate change

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Calendar

TUESDAY | SEPTEMBER 27

2:00 p.m. The Federalist Society for Law and Public Policy Studies will hold a virtual discussion titled, "Sackett v. EPA: How Will the U.S. Supreme Court Define 'Waters of the United States'?" Learn more and register here.

THURSDAY | SEPTEMBER 29

1:30 p.m. 210 Cannon The House Select Climate Crisis Committee will hold a hearing examining the various climate provisions included in the Inflation Reduction Act.