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An Economic Evaluation of Peru's LNG Export Policy

Author

Listed:
  • Leonard Leung

    () (Department of Economics, Queen's University, Canada)

  • Glenn Jenkins

    () (Department of Economics, Queen's University, Canada, Eastern Mediterranean University, Mersin 10, Turkey)

Abstract

Peru's Camisea gas fields hold nearly ninety percent of the country's natural gas reserves. In the 1990s, the government insisted on prioritizing Camisea gas for domestic consumption. The revocation of this policy in the 2000s allowed the private developers to export forty percent of Camisea's proven gas reserves, equivalent to Peru's one third of the total. This USD 3.9 billion LNG export project boasts the largest single foreign direct investment in Peru's history. A major component of the financing was granted by international financial institutions on economic grounds. While the project was expected to yield a substantial return to the private investors, it is clear that the exportation of one-third of Peru's total proven natural gas reserves is not aligned with its long term interests. In this paper, a cost-benefit analysis is undertaken under a series of scenarios starting with the situation during the projects formative stage in mid-2000s and again in 2012, two years after its commercial operation. In all cases, Peru does not have sufficient reserves to warrant export, and the economic costs far exceed the benefits. This project should not have been approved by the government, nor should have the loans been granted by the international financial institutions.

Suggested Citation

  • Leonard Leung & Glenn Jenkins, 2013. "An Economic Evaluation of Peru's LNG Export Policy," Development Discussion Papers 2013-03, JDI Executive Programs.
  • Handle: RePEc:qed:dpaper:227
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    References listed on IDEAS

    as
    1. Daubanes, Julien, 2011. "Optimal taxation of a monopolistic extractor: Are subsidies necessary?," Energy Economics, Elsevier, pages 399-403.
    2. Im, Eric Iksoon & Chakravorty, Ujjayant & Roumasset, James, 2006. "Discontinuous extraction of a nonrenewable resource," Economics Letters, Elsevier, vol. 90(1), pages 6-11, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Peru; Camisea gas fields; LNG export; cost-benefit analysis; energy trade;

    JEL classification:

    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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