Egyptian Elshorbagy looked a tad rusty on his return to World Tour action following the mid-season break, but eventually had too much for his countryman, going through 11-5 11-6 7-11 12-10.
The world number three looked on course for a routine victory at two games up, but Gawad fought back to claim game three superbly before then taking his compatriot all the way in game four.
Elshorbagy managed to hold his nerve, though, and now faces a last-16 clash with England's Chris Simpson.
Simpson had earlier outclassed wild-card entrant Tsz Fung Yip 3-0 (11-3 11-4 11-7) in just 26 minutes.
Fourth-seeded Spaniard Borja Golan enjoyed an even easier passage to round two, as his opponent Laurens Jan Anjema withdrew from the tournament before their match due to a foot injury.
Golan, who was beaten by Nick Matthew in last year's Hong Kong Open final, is now likely to hold a physical edge over second-round opponent Mohamed Abouelghar after the Egyptian was taken to five games by Joe Lee.
Abouelghar had to come from 2-1 down to claim a hard-fought 11-7 2-11 9-11 11-5 11-4 success.
World number 28 Gregoire Marche caused a shock by beating sixth seed Karim Darwish 3-1 (11-5 11-9 7-11 11-7), with the Frenchman's reward being a last-16 match against Switzerland's Nicolas Muller - who defeated Cameron Pilley 3-0 (11-8 11-4 11-5).
Also on Wednesday, fifth-seeded Englishman Peter Barker overcame compatriot Adrian Waller 3-0 (11-7 11-4 11-5) and will play India's Saurav Ghosal - 3-0 (11-4 11-6 11-3) winner over Henrik Mustonen - in round two.