Opportunities & Challenges in Reforming Energy Prices in GCC Countries
The recent fall in oil and natural gas revenues has brought renewed attention to domestic energy pricing issues among GCC governments. Fuel and feedstock prices are typically set below world market prices to support domestic energy-intensive activities such as petrochemicals production. GCC members can explore different pathways for reforming energy prices, as demonstrated by the successes in Dubai and Tunisia. Such reforms result in more efficient production and consumption of energy and a positive contribution to a nation’s finances.
- To remain competitive in the global market, domestic energy-intensive industries – such as petrochemicals – have long benefited from government subsidies in the form of low natural gas prices.
- Trading natural gas among GCC countries could bring joint gains while allowing the petrochemical industry to maintain its competitiveness.
- Although pricing distortions in domestic markets create obstacles to determining fair trading prices between countries, the power generation sector could gain tremendously from electricity trading, especially since an interconnected network is already in place.
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