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Industrial Energy Policy: A Case Study of the Demand in Kuwait

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  • Mohammad A. Al Awadhi
  • M. Nagy Eltony

    (Economic Department, Industrial Bank of Kuwait)

Abstract

The purpose of building the industrial energy demand model was to assess the impact of possible policy options and forecast future energy demand under various assumptions including the impact of the possible removal of energy subsidies in accordance with the WTO agreement. The forecasting results of the three scenarios raise several important issues. With nominal energy prices staying the same (the status quo) and inflation and economic growth continuing to expand (i.e., baseline scenario), all industries are expected to have growing demand for energy. The consumption of energy in the industrial sector is projected to grow at an annual growth rate of about 3.5% throughout the forecast period. In the case of the moderate scenario, the consumption of energy in the industrial sector is projected to grow by only 1.9% annually throughout the forecast period. If all the energy subsidies are removed, as in the extreme scenario, the consumption of energy in the industrial sector is projected to grow by only 1.5% annually throughout the forecast period. Moreover, as for inter-fuel substitution, the model forecast indicates that the consumption of electricity and natural gas will decline while the consumption of oil products will increase in all scenarios. The results indicate that changing the price structure of energy resources should be done in a comprehensive manner. In other words, electricity prices should be adjusted upwards instantly with the adjustment of oil products and natural gas prices, otherwise, a massive inter-fuel substitution will occur within the various industries.

Suggested Citation

  • Mohammad A. Al Awadhi & M. Nagy Eltony, 2004. "Industrial Energy Policy: A Case Study of the Demand in Kuwait," Working Papers 0405, Economic Research Forum, revised Feb 2004.
    • Handle: RePEc:erg:wpaper:0405
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    References listed on IDEAS

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    1. Nagy Eltony, M., 1996. "Demand for gasoline in the GCC: an application of pooling and testing procedures," Energy Economics, Elsevier, vol. 18(3), pages 203-209, July.
    2. Inder, B. A., 1984. "Finite-sample power of tests for autocorrelation in models containing lagged dependent variables," Economics Letters, Elsevier, vol. 14(2-3), pages 179-185.
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