Sen. John Coghill finds himself trying to balance reasonable hope with genuine concern about several resource development issues. The North Pole Republican says he believes the Senate Bill 21 referendum could have near and far-reaching effects on oil and natural gas field investments. Closer to home, he is also concerned about contentious debate over who should be allowed to expand the Interiorís natural gas distribution services: Fairbanks Natural Gas or the Interior Alaska Natural Gas Utility. Recent Regulatory Commission of Alaska hearings have left some lawmakers hoping a collective effort will prevail, but remain as unsure they are hopeful. Coghill is among them. Coghill recently returned from a resource development trip to Iceland. He serves as co-chair of the Senateís In-State Energy Committee. He is also Senate majority leader for the Republican-led caucus. Coghill discussed his first year as co-chair, his trip to Iceland and views on whatís ahead for Alaska.

Petroleum News: What was the purpose of the trip to Iceland?

Coghill: The purpose of the trip was to take the Arctic Policy group from Alaska to talk with an international group thatís interested in Arctic policy and who will have some influence with the Arctic Policy Council. This next year Canada is the chairman of the Arctic Policy Council, and we are trying to make sure Alaska is part of the conversation. Under the auspices of the Institute of the North, we were gathered together to talk to some of the international groups. There was a Russian ambassador there; a Canadian ambassador was there, too. We had people from Norway, Sweden, Indonesia. Alaska was probably the anchor tenant for the United States. There were two meetings that happened simultaneously. The focus of the one I attended was energy. The focus of the one after that was Arctic policy council voice. Energy had to do with how we would view exploration and energy extraction north of the Arctic Circle. There was not great representation of the industry there. It was mostly, states, nations and NGOs. I think Shell was the only industry representative that was there. I believe (Italyís) ENI was there, too.

Petroleum News: So what were your takeaways; what did you learn while you were there?

Coghill: I was pleasantly surprised, that, through the Institute of the North, they paid a lot of attention to Alaska voices. We probably learned a lot from Iceland in using their natural resources. Geothermal was the big takeaway for that: how did they use it to their advantage? Did they finance it? How did they finance it? Just like Alaska they have a small population, a huge resource and a lot of distance between populations. They did a lot of what Alaska is trying to do: Attract large investors from around the world. Alcoa is probably the one they use the most, using low-cost energy to produce aluminum. They were able to attract some pretty good industrial size businesses because of their low-cost geothermal power and they did a pretty good job of it. To me how they did it showed that they seemed to assess themselves enough to start the infrastructure then have business chime in with pretty significant investment and got the hydro and transmission done. They werenít without their own challenges. Their transmission lines need to be upgraded. They put in a pretty large hydro facility and it was finished four years before they had a customer because of some industrial people backing out. They had their challenges, but they stuck to it.

Petroleum News: These trips taken by lawmakers tend to attract scrutiny down the road. How do you defend this trip?

Coghill: For me, as an in-state energy chairman, the focus of it was how energy was used in Iceland and how it would lead to further exploration in the Arctic. Like it or not, Iím one of 20 who has to deal with Arctic issues. As co-chairman of the in-state energy committee, I was interested how they exploited their geothermal resource there. There are two parts to this: you go there to learn because we are trying to figure out how turn to our resources into value for us and secondly, to make sure we have a voice that is credible in the Arctic Circle discussion. You have to be places to make your voice credible.

Petroleum News: Closer to home, in Fairbanks and the Interior, youíve got quite a debate on how to prepare for trucking LNG. Whatís your take on it? What would you like to see happen.

Coghill: Itís in the hands of those who can make the investment here. Itís at least three groups who have a way to get gas into the Interior. Certainly they are looking for the best advantage, each one of them for themselves. Those of us in the Interior delegation agreed with the governor. We tried snag a good financing package to attract people willing to put cash up and come to the table. To this date, itís getting a little uncomfortable for me. Iím not a big fan of RCA establishing winners and losers. I donít know that they will. Iím uncomfortable by the timeline set up. We want to get something going by 2015, but if we have to wait on the RCA to push it, then the 2015 date is too close in my view. It would be much better if people came together and with a workable plan, agreeing among the different industry players as to what part they would play. Itís been tough to get to, as you well know. It keeps things complex. Whenever the lawyers are leading the economic discussion, itís more confrontational than business, quite frankly. I was hoping the financing package the Legislature passed, that it would create a business deal rather than a legal entanglement. Youíll have a legal entanglement anyway based on contracts, but it would at least move forward on good business principles. It could still happen. I havenít given up hope yet.

Petroleum News: Do you see the Legislature taking more action next session or do you believe youíve done your jobs thus far?

Coghill: At this point, even though Iím nervous, Iím willing to make it work. Things happen in economic times different from political times. Iím willing to let some of the economics work its way out. Iíll tell you that while weíre in session and an agreement looks like it will be hard to come by, then there may be another approach. I would say with the clock ticking as loud as it is and with the community having the need that it does. ... For example, if somebody in Southcentral comes up with an abundance of gas, and are willing to do contracts to the northern area, we may head in that direction. Iíve told people along the way, if we can get gas cheap enough to truck it out of Anchorage to beat the North Slope deal, thatís fine. The benefit of the North Slope was once you start moving gas off the North Slope, then you start making it a gas and oil field. To me the next big step from there is a big pipeline. Iím concerned that if the timeline for the trucking slips and the pipeline timeline stays on, then we may not be able to afford that trucking.

Petroleum News: Still closer to home, youíve mentioned your role as co-chair for in-state energy committee. What do you think youíve learned and accomplished this first year?

Coghill: The biggest accomplishment was mostly bringing things to light. The in-state LNG bill went from Resources to Finance, so we missed that phase but we agreed it was so important we didnít need another 10 days on it. In many ways we worked with them.

Mostly what we got was information. We brought to light some things, but probably it got overshadowed by two things .We were doing the tax debate, which took a serious amount of time; then overshadowed by the regulation reform debate, which really dominated both the Resource Committee and the Finance Committee. Thatís why we didnít want to delay the LNG financing, which legitimately needed to go to the Finance Committee. What we didnít bring to light was strategy for transmission of electricity. I think both Click Bishop and I have focused on that. Whether that falls into the in-state committee or we have to work on it in other committees ó that remains to be seen. Both Sen. Bishop and I agree that is one of the next big things: how to prioritize transmission electricity in Alaska. If we do something on transmission, my guess is you wonít see us working all session on it. We will probably try to put together a proposal, get it out, get it going and close up shop.

Petroleum News: You spoke of other heavy-hitting item. Letís take SB 21. Youíve got two issues still connected to it. First the referendum to repeal SB 21 and the other issue, drafting regulations that produce a clear definition of new oil that receives tax credits. Letís take the referendum first.

Coghill: The referendum leaves a dark cloud hanging over the investment in Alaska. In some ways you can say, look at this, you passed a law and new investment isnít coming. Well (the referendum) can be the cause of that. Even in spite of that, new investment is coming now, and Iím hoping that new investment will show the people of Alaska what we did was balanced enough to increase new investment and bring a fair share of oil revenue into the state of Alaska. It leaves that air of uncertainty. The other thing is the gas pipeline. The gas pipeline needs to have fiscal terms identified and brought into law. While that referendum is out there, I think itís going to be difficult to do.

Petroleum News: What about defining new oil. It wasnít just the critics of SB 21 who offered pushback. It was also the industry representatives who said metering can be problematic. What are your thoughts?

Coghill: It can be done. I know industry has pushed back on the metering, and they might have some legitimate concern there. If we are going to have new oil, it has to be clear. I think the department is heading down the right path. It has to be metered. I think we can get there. Itís tough. So is drilling a well. So is taxing people. So is running a school district. So itís doable.

Petroleum News: Youíve spoke of fiscal terms for a gas line. What would you like to see next for a gas line project?

Coghill: In order for us to know if the gas is valuable to Alaskans, we need to know what it costs to get out of the ground and what it costs to deliver to Alaskans. Thatís number one. Secondly, we need to know if those costs to get it out of the ground and get it in a pipe of large volume is valuable to sell on an international market; we need to know what those dynamics are. So before we start looking at royalties and all of that, we need to know what the suite of options are from the time you get out of the ground to the time you actually sell it to somebody. We have an idea, but we have to go through a series of analytical looks at it.

So I think we need to set that up. Then we need to say, OK, should we regulate it by royalty? Should we set it up the way we do the Kenai Peninsula? How should we look at it? Right now the North Slope is so much different from the Kenai Peninsula and yet the Kenai Peninsula has been at least able to sell it internationally. Add transportation costs to it from the North Slope, can we do that? Alaskans need to have a good hard look at it.

We canít just hold up our finger and see which way the wind is blowing. We have to be able to demonstrate here is the market for Alaska; here is the market internationally; here is how much gas you have; here is how much gas you have and here is what you are competing for in the world as far as gas markets, if you decide to sell it internationally. If you decide to sell it locally, here is what we pay to get it there. We need to say those things out loud. We need to say it credibly. We need to have good, studied numbers.

To date, the big thing is politically, whether itís a big-inch or small-inch line. We have a target number to deliver it at homes, but we are still at 30 percent knowledge and we need to get ready for an open season. If itís for a state market, what does that open season look like? What are the benefits to Alaska as far as gas, and as far as molecules?

Petroleum News: So would it be too soon for the executive branch to engage in a fiscal policy negotiation and bring something to the Legislature next year, either in the 90-day session or possibly a special session?

Coghill: Itís kind of a chicken and egg question. Itís going to take a lot of study on all counts. We studied it under very different scenarios, and none of those scenarios worked. The TransCanada pipeline ó that was a whole different scenario than, say, pumping 500 mcf to Southcentral. Doing that has one set of numbers, unless you export it, then you have another set of numbers.

At this point on purely costs issues, it hasnít added in royalties or state benefits yet, to my knowledge. Here is the tough part. Itís going to make it difficult to land on a principle-based system with the oil tax up for a referendum. Iím not sure how that dynamic is going to work if we say yes, weíll do this for our gas. Does it increase chances ó yeah or nay ó for passage or failure of the referendum? I donít know that. I donít know who does. Next year, weíve got every House member, the governor, two-thirds of the Senate are all up for a re-election and during a time of referendum. So that makes it politically difficult.

Petroleum News: So this coming year is almost a holding pattern for all of those reasons?

Coghill: I donít know if itís a holding pattern, but it makes it tougher sledding, makes it tougher to make a definitive decision. I will tell you this: if the oil tax referendum passes and the oil tax is repealed, there is no sense in talking gas pipeline, in my view. I think what we will have done is set things back. It doesnít matter what the Legislature is going to do, youíre never going to be certain about how youíre going to manage this. I think the pipeline just falls under that weight.

e.html>Brooks Range