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AEC 2012 - The Natural Gas Sector in Post-Revolution Egypt

16-Oct-2012

This paper assesses the economic implications of a situation in which Egypt increases the price of its gas exports to Israel and equalizes it to the world price. This is motivated by the Egyptian revolution that toppled a government, which was offering Israel preferential prices. It is also in line with the public discontent about that, which was reflected in several attacks on the pipelines that transfer the gas. Moreover, the paper also assesses the impacts of terminating the agreement in light of the April 2012 announcement of the Egyptian Natural Gas Holding Company of the termination of its contract to ship gas to Israel. Prices deviations from the average world prices are simulated in GTAP model and an updated version of GTAP database that reflects the actual natural gas production, trade shares and cost structures in both countries. Results reveal that the Egyptian economy will enjoy welfare benefits relative to preferential price variations from the world prices. However, the overall gas production in Egypt would decrease due to subsidy removal and domestic supply increase after shrinking exports. The gains would mainly be driven by increases in the exports price indices that despite the reductions in export volumes, generate higher export revenues for the economy. The GDP would also improve geared by the increasing returns to production factors in sectors other than gas and mainly in the electricity; chemical, rubber and plastic products; and service sectors.

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