Project Economics and Permissible Environmental Cost

摘要

An urgent issue facing the oil and gas industry today is howrnmuch each stakeholder should pay for the environmentalrnpollution resulting from oil and gas operations. The oilrnproducing companies argue that all the stakeholders shouldrnshare the cost. Some stakeholders, like the host nationalrngovernment and the host communities, disagree. They insistrnthat the oil companies should bear the full financialrnresponsibility for the environmental pollution. Hence, howrnmuch the oil company can pay for the environmental pollutionrnbecomes a very important question.rnThis paper determines the permissible cost ofrnenvironmental pollution for any oil and gas project. Using arnmodified conventional project economic profitability model,rnthe affordable cost of environmental pollution is estimated.rnSensitivity analyses are carried out for parameters such as oilrnprice and internal rate of return. The paper concludes that thernpermissible environmental cost should be a project screeningrncriterion for all future oil and gas projects.