Oil to be priced at $15 in the future-V: How will Indian E&P companies calculate their IRRs?
The important point to note is that the transition that will end the primacy of oil is the support that it will elicit from governments around the world. 8Electrical vehicles replacing motor vehicles would meet the conditions to keep global temperature rise below 2°C. 8There is a strong rationale for coordinated government intervention to make this transition in transportation even swifter to combat the effects of climate change. 8And when it comes to oil and gas companies in India, the problem is what is the base price to take to calculate the IRR of their proposed investments. 8The $15/bbl price is projected about 20 years from now, but how will oil or gas prices behave in the interim period? That is the big question. 8It is clearly a tough decision to make, particularly for the RIL-BP combine. 8Should it go by the enthusiasm created by a rise in oil prices in the next few years or should it look at a longer term horizon? Eventually, it will all depend upon what kind of investment payback period it is looking at 8For ONGC, the issue is already settled as the investments, now and in the next few years, are already committed in the KG Basin. 8One big advantage that both ONGC and RIL-BP will have is that the KG basin gas will enjoy a big premium over well head prices of similar discoveries around the world, because the gas price that they will solicit will be pegged to that of the delivered price of LNG in India.Click on Report for more.