Risk and the Rate of Return on Arctic Natural Gas: An Illustrative Analysis

‘Megaprojects’, as the name implies, have a discernible impact on a national economy and an even greater impact on the economy of the region in which they are located. Once embarked upon, they are not easy to curtail or abandon, acquiring a momentum of their own and the support of what become vested interests. The potential for dislocation associated with megaprojects accentuates the need for careful evaluation of their sensitivity to changes in underlying circumstances. More specifically, evaluating downside risk is crucial, since any financing assumes special significance. Moreover, if such projects run into difficulties, their size will tend to attract government action, thereby translating what might have been solely private risk into social risk as well.