Crude oil prices have dropped by more than 40 percent in the last two years. Abundant supply and weak worldwide demand lead to a significant world surplus.

Although the timing and magnitude of the expected rebound in world demand for oil and world oil prices are uncertain, it is projected that the price of oil will increase almost 6 percent a year on average between 1999 and 2007. (All prices are expressed in real 1997 dollars.)

Due to the economic problems in East Asia, the demand for oil in that region has been significantly dampened. In 1998, it is expected that oil demand in that area will decline. In the near-term, oil demand is expected to grow at only about one-half the rate of the past five years, with growth resuming after the turn of the century.

Although only a small portion of U.S. exports goes to the countries with the most serious economic problems, there is still an impact. Between 1995 and 1997, U.S. export demand growth averaged more than 11 percent a year but slowed to less than 1 percent in 1998. Export growth is expected to average less than 4 percent between 1998 and 2000 then rebound and grow at 8 percent a year from 2001 to 2003.

Total domestic petroleum supply declines throughout the forecast, as crude oil production declines from 6.5 million barrels a day in 1997 to 5.0 million barrels a day in 2020.

As total domestic supply declines, petroleum consumption is projected to increase at an average rate of 1.2 percent a year, from 18.6 million barrels a day to 24.7 million barrels day between 1997 and 2020, primarily due to transportation demand for petroleum.

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 increase of 0.8 percent a year.

In 2020, the price is 3 percent higher than in AEO98 because of a lower assessment of the offshore recoverable resource base. Lower drilling earlier in the forecast period, as a result of lower oil and gas prices, also contributes to lower reserve additions and higher prices later in the forecast.

Coal minemouth prices, which began to decline in the late 1970's, are projected to decline in real terms at an average rate of 1.5 percent a year between 1997 and 2020, reflecting a continuing shift to lower-cost, primarily surface-mined western coal and continued productivity gains in all regions. In 2020, coal prices are expected to be $12.74 a ton compared to $13.55 in AEO98, due to higher projected productivity and more production from western mines.

Labor productivity rises at an average rate of 2.3 percent a year in AEO99, compared with 2.0 percent a year in AEO98. Productivity rises at a slightly faster pace west of the Mississippi River, reflecting further concentration of western production in the Powder River Basin of Wyoming.

Western coal production is projected to increase 1.8 percent a year from 1997 to 2020, and Eastern production is essentially unchanged. Since Western coal is cheaper at the minemouth, this contributes to the lower prices compared to AEO98, which projected a larger role for Eastern coal.

Real electricity prices are projected to decline 0.9 percent a year between 1997 and 2020, from 6.9 cents a kilowatthour to 5.6 cents a kilowatthour, the same as in AEO98.

Similar to AEO98, the projections in AEO99 reflect the ongoing restructuring of the electricity industry to a competitive wholesale market. In addition, two more regions of the country are assumed to have competitive retail pricing in AEO99—the Mid-Atlantic Area Council (Pennsylvania, Delaware, New Jersey, and Maryland) and the Mid-America Interconnected Network (Illinois and parts of Wisconsin and Missouri). These regions are in addition to those assumed to have competitive pricing in AEO98—California, New York, and New England.

Carbon emissions are projected to rise at an average rate of 1.3 percent a year between 1997 and 2020. Emissions increase from 1,480 million metric tons in 1997 to 1,790 million metric tons in 2010 and 1,975 million metric tons in 2020, 33 percent and 47 percent, respectively, higher than the 1990 level of 1,346 million metric tons.

Carbon emissions increase faster than the overall growth in energy consumption of 1.1 percent a year. Declining nuclear generation is a contributing factor.

Between 1970 and 1986, energy use per dollar of gross domestic product declined at an average annual rate of 2.3 percent. Over much of this time, energy prices were rising rapidly, and the economy was shifting to less energy-intensive industries and more efficient technologies.

Following 1986, price increases moderated and there was some resumed growth of energy-intensive industries. Between 1986 and 1996, energy intensity was essentially flat.

In the projections, efficiency gains and structural shifts in the economy offset growth in the demand for energy services. Energy intensity declines at on average 1.0 percent a year between 1997 and 2020.

Light-truck sales have displaced car sales as vans and especially sport utility vehicles have increased in popularity. These vehicles have grown partly as a result of lower fuel prices, higher income levels, and the increase in the number of families.

Although new car and light truck fuel economy has been relatively flat over the past few years, combined new vehicle fuel efficiency has been falling from a high of 25.4 miles per gallon in 1990 to 24.0 miles per gallon in 1997. The displacement of car sales with light truck sales, especially vans and sport utility sales, has contributed significantly to this result.

New car and light truck fuel economy is forecast to rise to approximately 32.1 miles per gallon and 22.0 miles per gallon, respectively, because of increased penetration of advanced vehicles such as the electric hybrid (Toyota Prius) and direct-injection technology for both gasoline and diesel engines. A slowdown in the growth of performance also contributes to fuel economy improvements.

Manufacturers met the fuel economy demands by consumers during the late 1970s by significantly reducing engine size and performance.

Throughout the 1980s, with advanced technologies such as fuel injection and front-wheel drive, automakers were able to increase both performance and fuel efficiency.

AEO99 includes the impacts of legislation for the control of NO_x by electricity generators, including the Clean Air Act Amendments of 1990 and the Ozone Transport Rule.

The capital investment for these control technologies is expected to total about $8 billion.