Project Economics and Permissible Environmental Cost

Abstract

TX 75083-3836, U.S.A., fax 01-972-952-9435. AbstractAn urgent issue facing the oil and gas industry today is how much each stakeholder should pay for the environmental pollution resulting from oil and gas operations. The oil producing companies argue that all the stakeholders should share the cost. Some stakeholders, like the host national government and the host communities, disagree. They insist that the oil companies should bear the full financial responsibility for the environmental pollution. Hence, how much the oil company can pay for the environmental pollution becomes a very important question. This paper determines the permissible cost of environmental pollution for any oil and gas project. Using a modified conventional project economic profitability model, the affordable cost of environmental pollution is estimated. Sensitivity analyses are carried out for parameters such as oil price and internal rate of return. The paper concludes that the permissible environmental cost should be a project screening criterion for all future oil and gas projects.