Annual Energy Outlook 2002 with Projections to 2020
Over the past year, energy markets have been extremely volatile, with high prices for oil and natural gas and concerns for energy shortages earlier in the year giving way to an economic slowdown and lower prices following the September terrorist attacks in the United States. Those events are incorporated in the short-term projections for the Annual Energy Outlook 2002 (AEO2002), but long-term volatility in energy markets is not expected to result from their impacts or from the impacts of such future events as supply disruptions or severe weather. AEO2002 focuses on long-term events, including the supplies and prices of fossil fuels, the development of U.S.electricity markets, technology improvement, and the impact of economic growth on projected energy demand and carbon dioxide emissions through 2020.
The AEO2002 projections assume a transition to full competitive pricing of electricity in States with specific deregulation plans. Other States are assumed to continue cost-of-service pricing. The projections include recent delays in restructuring plans in several States. Problems in California have slowed the trend to restructuring, and retail access in the State has been suspended. The projections include the contracts entered into by California to guarantee electricity supplies in the State, leading to higher electricity prices than in the Annual Energy Outlook 2001 (AEO2001). Increased competition in electricity markets is also represented through changes in the financial structure of the industry and efficiency and operating improvements.
World oil prices remained relatively high through most of 2001,
largely due to actions by the Organization of Petroleum Exporting Countries
(OPEC)and some non-OPEC countries to restrain oil production. U.S. natural
gas prices achieved record levels in 2001 due to a cold winter and tight supplies
caused by reduced drilling in response to low prices in 1998 and 1999. Electricity
prices also reached record levels in California, as a result of restructuring
difficulties, tight natural gas markets, low hydroelectric generation levels,
and other generation problems. Energy prices began to decline later in 2001,
however, in response to the slowing economy and more normal supply markets
for natural gas and electricity.
Although there was an economic slowdown in the United States
in 2001,in the long term the U.S economy, as measured by gross domestic product
(GDP), is projected to grow at an average annual rate of 3.0 percent from
2000 to 2020, similar to the rate of 2.9 percent projected in AEO2001 for
the same period.Most of the determinants of economic growth are similar to
those projected in AEO2001, but there are some differences. For example, commercial
floorspace is expected to increase at an average annual rate of 1.7 percent
through 2020, as compared with 1.2 percent in AEO2001. The AEO2002 projection
has a significant impact on energy demand in the forecast for that sector
and is more consistent with recent historical trends.
The average world oil price is projected to decline from $27.72 per barrel in 2000 (2000 dollars) to $22.48 per barrel in 2001, before beginning a gradual increase after 2002.In 2020, the projected price reaches $24.68 per barrel (Figure 1), as compared with $22.92 per barrel projected in AEO2001, largely due to higher projected world oil demand. Because of the effectiveness of OPEC in managing oil production and the generally slow response of non-OPEC supply to higher world oil prices,projected prices in the years following 2002 remain higher than in AEO2001.
World oil demand is projected to increase from 76.0 million barrels per day in 2000 to 118.9 million barrels per day in 2020, higher than the AEO2001 projection of 117.4 million barrels per day,due to higher projected demand in the United States and developing countries, including the Pacific Rim and Central and South America.Growth in oil production in both OPEC and non-OPEC nations leads to the relatively slow growth of prices through 2020.OPEC oil production is expected to reach 57.5 million barrels per day in 2020, nearly double the 30.9 million barrels per day produced in 2000, assuming sufficient capital to expand production capacity.
Non-OPEC oil production is expected to increase from 45.7 to 61.1 million barrels per day between 2000 and 2020, 1.7 million barrels per day higher than projected in AEO2001,due to higher projected production in the Caspian Basin, offshore West Africa, and Brazil. Production from the Caspian Basin is expected to exceed 6.5 million barrels per day by 2020.By 2010, projected production in Brazil reaches nearly 2 million barrels per day and in the offshore regions of West Africa exceeds 2 million barrels per day. North Sea production is expected to peak in the middle of the current decade, reaching 7.5 million barrels per day, with a slower decline rate than earlier expected.By 2010, oil production in Mexico is expected to increase by 30 percent above current levels.
The average wellhead price of natural gas is projected to increase from $3.60 per thousand cubic feet in 2000 to nearly $4 per thousand cubic feet in 2001, then decline sharply in 2002. The price is expected to reach $3.26 per thousand cubic feet in 2020, slightly higher than the projection of $3.20 per thousand cubic feet in AEO2001. Although projected natural gas demand in 2020 is 1.0 trillion cubic feet lower than was projected in AEO2001, the price is expected to be higher due to a less optimistic assessment of natural gas reserves discovered by exploratory drilling. As the expected demand for natural gas increases over time, price increases are slowed by technological improvements in natural gas exploration and production. The transmission and distribution margins to electricity generators are projected to be higher than in AEO2001, under the assumption that generators will pay higher rates to guarantee pipeline capacity, particularly as natural gas is expected to be used more for baseload and intermediate- load generation.
In AEO2002, the average minemouth price of coal is projected to decline from $16.45 per ton in 2000 to $12.79 per ton in 2020, slightly lower than the price of $12.99 per ton projected in AEO2001. Higher projected demand in AEO2002 is met by increased production from lower cost western mines. Through 2020, the price is expected to decline with increasing productivity in mining, a shift to western production, and competitive pressures on labor costs.
Average electricity prices are projected to decline from 6.9
cents per kilowatthour in 2000 to 6.5 cents per kilowatthour in 2020, higher
than the 6.1 cents per kilowatthour projected for 2020 in AEO2001, due to
higher projections for natural gas prices, electricity demand, particularly
in the commercial sector, and natural gas margins to electricity generators.
Electricity industry restructuring contributes to declining projected prices
through reductions in operating and maintenance costs, administrative costs,
and other costs. Electricity prices are projected to decline to 6.3 cents
per kilowatthour by 2006 then rise in the last 5 years of the forecast as
natural gas prices rise. Federal Energy Regulatory Commission actions on open
access and other changes for competitive markets enacted by some State public
utility commissions are included in the projections, but because not all States
have deregulated their electricity markets, the projections do not represent
a fully restructured electricity market.
Total energy consumption is projected to increase from 99.3 to 130.9 quadrillion British thermal units (Btu) between 2000 and 2020, an average annual increase of 1.4 percent. In 2020, this forecast is nearly 4 quadrillion Btu higher than in AEO2001, primarily due to higher projected energy demand in the commercial and transportation sectors. The projections incorporate efficiency standards for new energy-using equipment in buildings and for motors mandated through 1994 by the National Appliance Energy Conservation Act of 1987 and the Energy Policy Act of 1992, including the new residential and commercial equipment standards.
Residential energy consumption is projected to grow at an average rate of 1.0 percent per year, with the most rapid growth for computers,electronic equipment, and appliances. In 2020,the projected residential demand is 24.3 quadrillion Btu, slightly lower than projected in AEO2001. Lower projected energy demand, particularly for natural gas, results from 2-percent lower housing starts in 2020, higher projected natural gas prices, and the new equipment efficiency standards announced in January 2001, as revised by the Bush Administration.
Commercial energy demand is projected to grow at an average annual rate of 1.7 percent, reaching 23.2 quadrillion Btu in 2020, 2.4 quadrillion Btu higher than in AEO2001. Commercial floorspace is projected to grow by an average of 1.7 percent per year, as compared with 1.2 percent per year in AEO2001, raising the demand for energy for many end uses in the commercial sector. The January 2001 equipment standards have a smaller impact in the commercial sector than in the residential sector. The most rapid increases in demand are projected for computers, office equipment, and telecommunications and other equipment.
Industrial energy demand is projected to increase at an average rate of 1.1 percent per year, reaching 43.8 quadrillion Btu in 2020, slightly higher than in the AEO2001 forecast. Industrial gross output is projected to grow at an average annual rate of 2.6 percent; however, the growth is partially offset by an average projected decline in industrial energy intensity of 1.5 percent per year.Contributing to this decline is a continuing projected shift to less energy-intensive industries. The average annual growth in non-energy-intensive manufacturing is expected to be 3.3 percent, compared with 1.2 percent for energy-intensive manufacturing.
Transportation energy demand is projected to grow at an average annual rate of 1.9 percent, to 39.6 quadrillion Btu in 2020, 1.1 quadrillion Btu higher than in AEO2001. The projected energy demand for light-duty vehicles and heavy trucks is higher in AEO2002,because a reevaluation of recent trends in both travel and efficiency indicates more rapid growth in travel and slower growth in efficiency. In 2020, projected efficiency for new cars,new light trucks, and heavy trucks is lower by 0.8, 0.9, and 0.6 miles per gallon, respectively, than in AEO2001.
Electricity demand is projected to grow by 1.8 percent per year from 2000 through 2020, the same rate as in AEO2001; however, demand is 2 percent higher in 2020. The most rapid growth is expected for computers, office equipment, and a variety of residential and commercial appliances and equipment.
Demand for natural gas increases at an average annual rate of 2.0 percent (Figure 2), from 22.8 to 33.8 trillion cubic feet between 2000 and 2020, primarily due to rapid growth in demand for electricity generation. Total natural gas demand is projected to be 1.0 trillion cubic feet lower than in AEO2001, due to lower projected residential and electricity generation demand, offset in part by higher projected commercial demand.
In AEO2002, total coal consumption is projected to increase from 1,081 to 1,365 million tons between 2000 and 2020, an average increase of 1.2 percent per year.This projection is 68 million tons higher than the AEO2001 projection due to higher projected demand for electricity generation, which constitutes about 90 percent of the domestic demand for coal.
Petroleum demand is projected to grow at an average annual rate of 1.5 percent through 2020, led by growth in the transportation sector, which is expected to account for more than 70 percent of petroleum demand in 2020. Projected demand in 2020 is higher than in AEO2001 by 830 thousand barrels per day due to higher transportation demand.
Renewable fuel consumption, including ethanol for gasoline blending, is projected to grow at an average rate of 1.7 percent per year through 2020, primarily due to State mandates. Nearly 55 percent of the projected demand for renewables in 2020 is for electricity generation and the rest for dispersed heating and cooling, industrial uses, including cogeneration,and fuel blending. The projected demand for renewable fuels in 2020 is 0.7 quadrillion Btu higher than in AEO2001, mainly due to higher use of biomass for industrial cogeneration and increased generation from geothermal and wind energy.
Between 1970 and 1986, energy intensity,measured as energy use per dollar of GDP,declined at an average annual rate of 2.3 percent as the economy shifted to less energy-intensive industries and more efficient technologies in light of energy price increases (Figure 3). With slower price increases and growth of more energy-intensive industries, intensity declines moderated to an average of 1.5 percent per year between 1986 and 2000. Energy intensity is projected to continue to decline at an average annual rate of 1.5 percent through 2020, as continuing efficiency gains and structural shifts in the economy offset growth in demand for energy services.
Energy use per person generally declined from 1970 through the mid-1980s, increasing when energy prices declined.Per capita energy use increases slightly in the forecast, with efficiency gains only partially offsetting higher demand for energy services.
Generation from natural gas,coal,and renewable fuels is projected to increase through 2020 to meet growing demand for electricity and offset the projected retirement of some existing fossil-fuel-fired and nuclear units (Figure 4). The projected levels of generation from power plants using coal, nuclear, and renewable fuels are higher than in AEO2001 due to higher projected electricity demand,assumed improvements in the operating costs and performance of nuclear plants, and higher natural gas prices, which reduce natural-gas-fired generation relative to AEO2001.The share of generation from natural gas is projected to increase from 16 percent in 2000 to 32 percent in 2020, and the share from coal is projected to decline from 52 percent to 46 percent as a more competitive electricity industry invests in the less capital-intensive and more efficient natural gas generation technologies.
Nuclear generating capacity is projected to decline from 2000 to 2020, but a reevaluation of the agingrelated costs for nuclear plants and the expectation of higher natural gas prices lead to a higher projection than in AEO2001. Nuclear plant retirements in the forecast are based on the cost of maintaining operation compared with the cost of new capacity. Of the 98 gigawatts of nuclear capacity available in 2000, 10 gigawatts are projected to be retired by 2020, as compared with 26 gigawatts of retirements in AEO2001. No new nuclear plants are expected to be constructed by 2020 in the reference case, based on the relative economics of alternative technologies.
Renewable technologies are projected to grow slowly because of the relatively low costs of fossil-fired generation and because competitive electricity markets favor less capital-intensive natural gas technologies over coal and baseload renewables. Where enacted, State renewable portfolio standards, which specify a minimum share of generation or sales from renewable sources, contribute to the growth of renewables. With higher expected levels of industrial cogeneration and wind and geothermal generation, total renewable generation,including cogenerators, is projected to increase by 1.3 percent per year to a 2020 level that is slightly higher than in AEO2001.
Total energy consumption is expected to increase more rapidly than domestic energy production through 2020. As a result,net imports of energy are projected to meet a growing share of energy demand (Figure 5). Projected U.S. crude oil production declines at an average annual rate of 0.2 percent from 2000 to 2020, to 5.6 million barrels per day. Production is projected to increase in the latter half of the forecast and is 0.6 million barrels per day higher in 2020 than in AEO2001, due to production from more fields in the National Petroleum Reserve- Alaska, which is expected to begin in 2010. As a result of projected increases in natural gas plant liquids production, total petroleum production is expected to increase through 2020 (Figure 6). Increasing demand for petroleum is projected to raise the share of demand met by net imports from 53 percent in 2000 to 62 percent in 2020 (lower than the 64-percent share in AEO2001, due to higher domestic production).
As demand for natural gas increases in the forecast, production is expected to increase from 19.1 to 28.5 trillion cubic feet between 2000 and 2020,an average annual rate of 2.0 percent. Projected production in 2020 is 0.6 trillion cubic feet lower than in AEO2001, because the projected rate of growth in demand is lower in AEO2002. Net imports, primarily from Canada, are projected to increase from 3.5 to 5.5 trillion cubic feet between 2000 and 2020. Net imports of liquefied natural gas (LNG) are projected to increase to 0.8 trillion cubic feet by 2020. The remaining two of the four existing U.S. LNG import facilities have announced plans to reopen, and three of the four have announced capacity expansion plans.
U.S.coal production is projected to increase at an average annual rate of 1.3 percent, from 1,084 million tons in 2000 to 1,397 million tons in 2020, as domestic demand grows. Projected production in 2020 is 66 million tons higher than in AEO2001. Coal exports are projected to decline slightly through 2020, as European demand for imports declines as a result of environmental concerns and competition from other producers.
Renewable energy production is projected to increase from 6.5 to 8.9 quadrillion Btu between 2000 and 2020, with growth in industrial biomass, ethanol, and all sources of renewable electricity generation, with the exception of solar. Renewable energy production in 2020 is 0.6 quadrillion Btu higher than projected in AEO2001, due to higher expected levels of industrial cogeneration and generation from geothermal and wind energy.
Carbon dioxide emissions from energy use are projected to increase at an average rate of 1.5 percent per year, from 1,562 million metric tons carbon equivalent in 2000 to 2,088 million in 2020 (Figure 7). Projected emissions in 2020 are higher by 47 million metric tons carbon equivalent than in AEO2001, due to higher projected energy demand in the commercial and transportation sectors and more coalfired electricity generation than in AEO2001. The higher projection for nuclear generation in AEO2002 offsets some of the increase that would be expected to result from these trends, but carbon dioxide emissions still are expected to increase more rapidly than total energy consumption, as a result of increasing use of fossil fuels, a slight decline in nuclear generation, and slow growth in renewable generation.
The projections do not include future actions that might be taken to reduce carbon dioxide emissions but do include voluntary actions to reduce energy demand and emissions.
December 21, 2001
(Next Release: January 2003)