the forecast and reaches a market share of only 51 percent, compared with 57 percent in AEO98.

The average wellhead price of natural gas is projected to increase from $2.23 per thousand cubic feet in 1997 to $2.68 per thousand cubic feet in 2020, an average annual growth rate of 0.8 percent. Continued technological improvements in the exploration and production of natural gas moderate the price increase even as demand grows rapidly. In 2020, the price is higher than the $2.59 projected in AEO98, primarily because of a lower assessment of the recoverable resource base. Average delivered prices decline between 1997 and 2020 as a result of efficiency improvements in transmission and distribution; however, margins are as much as $0.20 to $0.30 per thousand cubic feet higher in AEO99 than in AEO98 in the 2000 to 2010 period, because recent data indicate fewer pipeline and distribution cost reductions than previously assumed.

In AEO99, the average minemouth price of coal is projected to decline from $18.14 per ton in 1997 to $12.74 per ton in 2020, as a result of increasing productivity in the industry, more production from lower-cost western mines, and competitive pressures on labor costs. Slightly lower production and higher productivity, as noted in recent data, lead to a price that is lower than the $13.55 in AEO98. Average electricity prices decline from 6.9 cents per kilowatthour in 1997 to 5.6 cents per kilowatthour in 2020, the same as in AEO98. The restructuring of the electricity industry contributes to declining prices throughout the Nation through lower operating and maintenance costs, lower administrative costs, and other cost reductions. Federal Energy Regulatory Commission actions on open access and other regulatory initiatives for competitive markets enacted by some State public utility commissions are included in the projections, as are renewable portfolio standards and other mandates that have been passed in some States. Legislative actions affecting the electricity industry are discussed in the "Legislation and Regulations" section of this report (page 14), and electricity pricing is discussed in "Issues in Focus" (page 24).

Consumption

Total U.S. energy consumption is projected to increase from 94.0 to 119.9 quadrillion British

Overview

thermal units (Btu) between 1997 and 2020, an av erage annual increase of 1.1 percent. In 2020, consumption is slightly higher than the 118.6 quadrillion Btu projected in AEO98, with higher commercial, industrial, and transportation demand partially offset by lower residential demand.

Consumption in the residential and commercial sectors is projected to increase at average rates of 0.8 and 0.7 percent a year, respectively, led by growth for a variety of equipment-telecommunica tions, computers, and other appliances. Residential demand is lower than in AE098-22.9 quadrillion Btu in 2020, compared with 23.2 quadrillion Btu, because more efficient building shells in new con struction offset higher growth in the housing stock. In the commercial sector, data from the Commercial Buildings Energy Consumption Survey 1995 indicate less floorspace but higher energy intensities for some end uses. Commercial demand is projected to be 18.1 quadrillion Btu in 2020, 0.6 quadrillion Btu higher than in AEO98, primarily because of higher demand for natural gas and electricity.

Demand in the industrial sector increases at an average of 0.8 percent a year and is about 0.6 quadrillion Btu higher in 2020 than in AEO98. More rapid efficiency improvement in some manufacturing sectors is offset by higher energy intensity indicated by the Manufacturing Energy Consumption Survey 1994. Because the economic downturn in Asia affects the market for U.S. exports, manufacturing output and industrial demand are signifi cantly lower than in AEO98 over the next 10 years, rebounding later in the projections.

Transportation demand grows on average by 1.7 percent a year and is 0.4 quadrillion Btu higher in 2020 than in AEO98. The introduction of directinjection engines and other advanced automotive technologies improves the efficiency of light-duty vehicles, but the improvement is more than offset by higher travel, resulting from higher projected personal income. Recent data indicate higher load factors and efficiency for aircraft, which are offset by more air travel. Freight requirements for both rail and trucks are also higher, primarily because of the higher economic growth projected in AEO99.

AEO99, like earlier AEOs, incorporates efficiency standards for new energy-using equipment in

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Overview

buildings and for motors mandated by the National Appliance Energy Conservation Act of 1987 and the Energy Policy Act of 1992. Several alternative cases examine the impact of technology on the projections by assuming more and less rapid improvement of energy-efficient technologies in the end-use sectors relative to that projected in the reference case.

Natural gas consumption increases by an average of 1.7 percent a year (Figure 2). Demand increases in all sectors, but the most rapid growth is for electricity generation, which is projected to increase from 3.3 to 9.2 trillion cubic feet between 1997 to 2020, excluding cogenerators. Total gas consumption is only 0.1 trillion cubic feet higher than in AEO98 in 2020, with higher demand in the commercial and industrial sectors offset by lower demand in the residential and electricity generation sectors. Figure 2. Energy consumption by fuel, 1970-2020 (quadrillion Btu)

Coal consumption increases from 1,030 to 1,275 million tons between 1997 and 2020, an average annual increase of 0.9 percent. About 90 percent of the coal use is for electricity generation, and coal remains the primary fuel for generation, although its share of generation declines by 2020. Coal demand in 2020 is 18 million tons higher than in AEO98 because of higher projected demand for electricity generation.

Petroleum demand is projected to grow at an average rate of 1.2 percent a year through 2020, led by continued growth for transportation, which accounts for about 70 percent of petroleum use in 2020. Increases in travel more than offset efficiency increases, and higher economic growth increases freight and shipping, and thus petroleum use, through 2020. Compared with AEO98, total transportation energy demand is slightly higher, with

higher projected efficiencies for new automobiles and aircraft more than offset by higher travel and freight requirements.

Renewable fuel consumption, including ethanol used for blending in gasoline, increases at an average rate of 0.8 percent a year through 2020. About 60 percent of renewables are used for electricity generation and the rest for dispersed heating and cooling, industrial uses, and fuel blending. In 2020, renewables are 0.7 quadrillion Btu higher than in AEO98, with higher demand for electricity generation, industrial uses, and ethanol blending.

Electricity demand is projected to grow by 1.4 percent a year through 2020. Efficiency gains in the use of electricity partially offset the growth of new electricity-using equipment. Electricity demand is only slightly higher than in AEO98, because an increase in commercial demand, resulting from more rapid growth of office equipment, computers, and other appliances is offset by a decrease in industrial demand from efficiency improvements in some manufacturing industries.

Energy Intensity

Energy intensity, measured as energy use per dollar of gross domestic product (GDP), has declined since 1970, particularly when energy prices have risen rapidly (Figure 3). Between 1970 and 1986, energy intensity declined at an average rate of 2.3 percent a year as the economy shifted to less energy-intensive industries and more efficient technologies. With moderate price increases and the growth of more energy-intensive industries, intensity improvements were flat between 1986 and 1996. From 1997

Generation from both natural gas and coal is projected to increase through 2020 to meet growing demand for electricity and offset the decline in nuclear power. Coal prices are lower than in AEO98, leading to slightly higher coal generation, but the share of coal generation declines by 2020 because assumptions about electricity industry restructuring favor the construction of less capitalintensive and more efficient natural gas generation technologies. The natural gas generation share increases from 14 percent to 33 percent between 1997 and 2020. The new NOx standards lead to the installation of control technologies at many plants,

Overview

with annualized costs of $2 billion, compared with $200 billion in annual electricity expenditures.

Renewable generation, including cogenerators, increases by 0.5 percent a year and in 2020 is 11 percent higher than in AEO98. Renewable technologies penetrate slowly because of the relatively modest increase in natural gas prices and the decrease in coal prices. In addition, electricity restructuring tends to favor natural gas over coal and baseload renewable technologies. State renewable portfolio standards, where enacted, and other programs to encourage the development of renewable technologies contribute to the growth of renewable generation.

Compared with AEO98, lower resource costs in the AEO99 projections result in more biomass genera. tion, and higher capacity factors for hydroelectric and geothermal facilities lead to higher generation from those technologies. Hydropower, currently the largest renewable resource used for generation, declines slightly through 2020. Its growth is limited by high capital costs, lack of available new sites, reduced Federal investment, and declining public sup. port. Generation from other renewable sourcesmunicipal solid waste, solar, and wind-increases to levels similar to those in AEO98 in 2020.

Production and Imports

U.S. crude oil production declines at an average rate of 1.1 percent a year between 1997 and 2020 to a projected level of 5.0 million barrels a day. Advances in oil exploration and production technologies do not offset declining resources. Projected oil prices in AEO99 are similar to those in AEO98 in 2020, but are significantly lower earlier in the projection period. Higher domestic oil reserves, as indicated by recent data, offset the impact of lower oil prices. Production is similar to or higher than that in AEO98 through most of the forecast. In 2020, the projected production is essentially the same as in AEO98. Total petroleum production (Figure 5) is shored up by production of natural gas plant liquids, which partially offsets the decline in crude oil production.

Declining production and rising demand lead to increasing petroleum imports through 2020 (Figure 6). The share of petroleum consumption met by net imports rises from 49 percent in 1997 to 65 percent however, the share is higher earlier in the projection period because of lower domestic production.

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In AEO99, natural gas production is projected to increase from 18.9 trillion cubic feet in 1997 to 27.4 trillion cubic feet in 2020, an average rate of 1.6 percent a year, to meet most of the rising domestic demand for natural gas. Additional supplies of natural gas are provided by imports. Net imports of natural gas, primarily from Canada, increase from 2.8 to 5.0 trillion cubic feet between 1997 and 2020. It is assumed that pipeline capacity from Canada will increase to accommodate imports of competitively priced Canadian gas.

Coal production grows from 1,099 million tons in 1997 to 1,358 million tons in 2020, an average increase of 0.9 percent a year, to meet rising domestic and export demand. Most steam coal exports serve markets for electricity generation in Europe and Asia. Metallurgical coal exports to Europe and Asia decline. Export demand is lower than in AEO98 by 35 million tons because of environmental concerns and economic problems in some countries. Because lower export demand is only partially offset

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by higher domestic demand, coal production in 2020 is 18 million tons lower than the AEO98 projection. Total renewable energy production is projected to increase from 6.8 to 8.2 quadrillion Btu between 1997 and 2020-an average annual increase of 0.8 percent-with growth in electricity generation from geothermal, biomass, and municipal solid waste generation and in industrial biomass and ethanol use. Renewable energy production in 2020 is 0.4 quadrillion Btu higher than in AEO98. More renewables are used for electricity generation, cogeneration, and ethanol blending, and AEO99 incorporates ethanol production from cellulose beginning in 2001, which was not included in AEO98.

Carbon Emissions

Carbon emissions from energy use are projected to increase by an average of 1.3 percent a year through 2020, from 1,480 million metric tons in 1997 to 1,790 million metric tons in 2010 and 1,975 million metric tons in 2020 (Figure 7), due to rising energy demand, declining nuclear power, and slow growth of renewables. Relative to the 1990 level of 1,346 million metric tons, emissions are 33 and 47 percent higher, respectively, in 2010 and 2020. Projected emissions in 2020 are higher by 19 million metric tons than in AEO98, due to higher energy demand and higher levels of coal-fired electricity generation.

Figure 7. U.S. carbon emissions by sector and fuel, 1990-2020 (million metric tons)

The Climate Change Action Plan (CCAP) was developed to stabilize greenhouse gas emissions in 2000 at 1990 levels. AEO99 includes CCAP provisions, but no new carbon reduction policies are incorporated. Carbon emissions and the Kyoto Protocol are discussed in "Issues in Focus" (pages 30-41).