Energy Conservation Industry Review

Report Highlights

INTRODUCTION

TRENDS IN ENERGY CONSUMPTION

GAS SUPPLIES SHAPING UP AS ISSUE

A major consideration for energy markets, both near and long term, will be the availability of adequate natural gas supplies. Indeed, growing gas demand will require major new, large-volume natural gas supply projects for both domestic and imported supplies to meet future demand levels, including deepwater offshore wells, new and expanded liquefied natural gas (LNG) facilities, the Mackenzie Delta pipeline in Canada, and an Alaskan pipeline that would allow delivery of natural gas to the lower 48 States.

At roughly $3.70 per thousand cubic feet, this year's DOE projection for wellhead natural gas prices in the long term is more than 35 cents higher than last year's, due to a downward revision of the potential for inferred natural gas reserve appreciation and a reduced expectation for technology improvement over time. As demand for natural gas increases, expected technology improvements do not completely offset the effects of resource depletion.

ELECTRICITY PRICES MODERATE STIFLING NEW CONSERVATION

Average real electricity prices are still projected to decline from 7.3 cents per kilowatthour in 2001 to a low of 6.3 cents as early as 2007 as a result of cost reductions in an increasingly competitive market where excess generating capacity has resulted from the recent boom in construction and the continued decline in coal prices. Electricity industry restructuring contributes to declining projected prices through reductions in operating and maintenance costs, administrative costs, and other miscellaneous costs. After 2008, average real electricity prices are projected to increase by only a small amount, 0.4% per year, as a result of rising natural gas prices and a growing need for new generating capacity to meet electricity demand growth.

ENERGY INTENSITY

Energy intensity (energy use per dollar of GDP) is projected to continue to decline at an average annual rate of 1.5% for the foreseeable future, as continued efficiency gains and structural shifts in the economy offset growth in the demand for energy services. Energy use per person generally declined from 1970 through the mid-1980s but began to increase as energy prices declined in the late 1980s and 1990s. Per capita energy use is projected to increase in the forecast, with growth in demand for energy services only partially offset by efficiency gains. Per capita energy use increases by 0.7% per year at least over the coming decade.

ELECTRICITY GENERATION

Generation from natural gas, coal, nuclear, and renewable fuels is projected to increase to meet growing demand for electricity and offset the projected retirement of existing generating capacity, mostly fossil steam capacity being displaced by more efficient natural-gas-fired combined-cycle capacity brought online in the past few years and still being constructed.

The natural gas share of electricity generation is projected to increase from 17% at present to 29% in the long term, including generation by electric utilities, IPPs, and CHP generators. The share from coal is projected to decline from 52% in 2001 to 47% as a more competitive electricity industry invests in less capital-intensive and more efficient natural gas generation technologies. Nonetheless, coal remains the primary fuel for electricity for the long-term and the expectation at present is that about 74 gigawatts of new coal-fired generating capacity will be constructed over the next twenty years.

RENEWABLES STILL UNDER PRESSURE

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 in the competition for new capacity. Total renewable generation, including CHP, is projected to increase from 298 billion kilowatthours in 2001 to almost 500 billion kilowatthours over the next twenty years, an increase of 2.5% per year.

RESIDENTIAL, COMMERCIAL, INDUSTRIAL SECTORS

Total residential sector energy consumption is projected to grow at an average rate of 1.0% per year with the most rapid growth expected for computers, electronic equipment, and appliances. By 2020, projected residential demand is 24.5 quadrillion Btu. Commercial energy demand is projected to grow at an average annual rate of 1.6% between 2001 and 2025, reaching 23.5 quadrillion Btu in 2020. The most rapid increases in demand are projected for computers, office equipment, telecommunications, and miscellaneous small appliance uses. Commercial floorspace is projected to grow by an average of 1.6% per year between 2001 and 2020. Industrial energy demand is projected to increase at an average rate of 1.3% per year between 2001 and 2025, reaching 41.7 quadrillion Btu in 2020.

TRANSPORTATION SECTOR — LACK OF CONSERVATION CONTINUES TO DRIVE OIL IMPORTS

Net imports accounted for 55% of total U.S. oil demand in 2001, up from 37% in 1980 and 42% in 1990. That trend is expected to continue. A growing portion of imports is projected to be refined petroleum products, such as gasoline, diesel fuel, and jet fuel, assuming the future availability of those products in world markets.

Transportation energy demand is projected to grow at an average annual rate of 2.0% between 2001 and 2025, reaching 40.4 quadrillion Btu in 2020. Recent forecasts project that vehicle miles traveled are becoming higher and vehicle efficiency will be lower than previously thought. Light-duty vehicle miles traveled are projected to grow by 2.4% per year through 2020. Consistent with recent trends, less improvement is projected for the average fuel efficiency of new light-duty vehicles. New light-duty vehicle efficiency is projected to reach 25.6 miles per gallon by 2020.