Net energy delivered to consumers represents only a part of total primary energy consumption. Primary consumption includes energy losses associated with the generation, transmission, and distribution of electricity, which are allocated to the end-use sectors (residential, commercial, and industrial) in proportion to each sector's share of electricity use.

How energy consumption is measured has become more important over time, as reliance on electricity has expanded. In 1970, electricity accounted for only 12 percent of energy delivered to the end-use sectors, excluding transportation. Since then, the growth in electricity use for applications such as space conditioning, consumer appliances, telecommunication equipment, and industrial machinery has resulted in greater divergence between primary and delivered energy consumption. This trend is expected to stabilize in the forecast, as more efficient generating technologies offset increased demand for electricity. Projected primary energy consumption and delivered energy consumption both grow by 1.2 percent per year, excluding transportation use.

Energy intensity, both as measured by primary energy consumption per dollar of GDP and as measured on a per capita basis, declined between 1970 and the mid-1980s. Although the overall GDP-based energy intensity of the economy is projected to continue declining between 2000 and 2020, the decline is not expected to be as rapid as it was in the earlier period. GDP is estimated to increase by almost 80 percent between 2000 and 2020, compared with a 32-percent increase in primary energy use. Relatively stable energy prices are expected to slow the decline in energy intensity, as is increased use of electricity-based energy services. When electricity claims a greater share of energy use, consumption of primary energy per dollar of GDP declines at a slower rate, because electricity use contributes both end-use consumption and energy losses to total energy consumption.

In the AEO2002 forecast, the demand for energy services is projected to increase markedly over 2000 levels. The average home in 2020 is expected to be 6.5 percent larger and to use electricity more intensively. Annual personal highway travel and air travel per capita in 2020 are expected to be 31 percent and 68 percent higher, respectively, than in 2000. With the growth in demand for energy services, primary energy intensity on a per capita basis is projected to increase by 0.6 percent per year through 2020, with efficiency improvements in many end-use energy applications making it possible to provide higher levels of service without significant increases in total energy use per capita.

From 1970 to 1986, with demand for coking coal reduced by declines in steel production and natural gas use falling as a result of end-use restrictions and curtailments, electricity's share of industrial energy use increased from 23 percent to 33 percent. The natural gas share fell from 32 percent to 24 percent, and coal's share fell from 16 percent to 9 percent. After 1986, natural gas began to recover its share as end-use regulations were lifted and supplies became more certain and less costly. As on-site cogeneration increased, the share of industrial delivered energy use made up by purchased electricity declined.

Primary energy use in the industrial sector-which includes the agriculture, mining, and construction industries in addition to traditional manufacturing-is projected to increase by 1.1 percent per year. Electricity (for machine drive and some production processes) and natural gas (given its ease of handling) are the major energy sources for the industrial sector. Industrial delivered electricity use is projected to increase by 32 percent, with competition in the generation market keeping electricity prices low. Despite a projected increase in natural gas prices after 2002, its use for energy in the industrial sector is expected to increase by 25 percent between 2000 and 2020. Industrial petroleum use is also projected to grow by 27 percent. Coal use is expected to remain essentially constant, as new steel making technologies continue to reduce demand for metallurgical coal, offsetting modest growth in coal use for boiler fuel and as a substitute for coke in steel making.

Approximately 70 percent of all the energy consumed in the industrial sector is used to provide heat and power for manufacturing. The remainder is approximately equally distributed between non-manufacturing heat and power and consumption for non-fuel purposes, such as raw materials and asphalt.

Non-fuel use of energy in the industrial sector is projected to grow more rapidly (1.1 percent per year) than heat and power consumption (1.0 percent per year). The feedstock portion of non-fuel use is projected to grow at a slightly lower rate (0.9 percent per year) than the output of the bulk chemical industry (1.1 percent per year) due to limited substitution possibilities. In 2020, feedstock consumption is projected to be 5.0 quadrillion Btu. Asphalt use, the other component of non-fuel energy use, is projected to grow by 1.6 percent per year, to 1.8 quadrillion Btu in 2020. The construction industry is the principal consumer of asphalt for paving and roofing. Asphalt use does not grow as rapidly as construction output (2.0 percent per year), because not all construction activities require asphalt.

Petroleum refining, chemicals, and pulp and paper are the largest end-use consumers of energy for heat and power in the manufacturing sector. These three energy-intensive industries used 8.9 quadrillion Btu in 2000. The major fuels used in petroleum refineries are still gas, natural gas, and petroleum coke. In the chemical industry, natural gas accounts for 60 percent of the energy consumed for heat and power. The pulp and paper industry uses the most renewables, in the form of wood and spent liquor.

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 floor space 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.