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An Economic Evaluation of Peru's LNG Export Policy

  • Leonard Leung

    ()

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

  • Glenn Jenkins

    ()

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

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.

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Paper provided by JDI Executive Programs in its series Development Discussion Papers with number 2013-03.

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Length: 30 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:qed:dpaper:227
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  1. Julien Daubanes, 2008. "Optimal taxation of a monopolistic extractor: are subsidies necessary?," CER-ETH Economics working paper series 08/92, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. Eric Iksoon Im & Ujjayant Chakravorty & James Roumasset, 2004. "Discontinuous Extraction of a Nonrenewable Resource," Emory Economics 0406, Department of Economics, Emory University (Atlanta).
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