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What is natural gas? Natural gas occurs deep beneath the earth's surface. Natural gas consists mainly of methane, a compound with one carbon atom and four hydrogen atoms. Natural gas also contains small amounts of hydrocarbon gas liquids and nonhydrocarbon gases. We use natural gas as a fuel and to make materials and chemicals. How did natural gas form? Millions of years ago, the remains of plants and animals (diatoms) decayed and built up in thick layers, sometimes mixed with sand and silt. Over time, these layers were buried under sand, silt, and rock. Pressure and heat changed some of this organic material into coal, some into oil (petroleum), and some into natural gas. In some places, the natural gas moved into large cracks and spaces between layers of overlying rock. In other places, natural gas occurs in the tiny pores (spaces) within some formations of shale, sandstone, and other types of sedimentary rock, where it is referred to as shale gas or tight gas. Natural gas also occurs in coal deposits, which is called coalbed methane. The search for natural gas begins with geologists who study the structure and processes of the earth. They locate the types of rock that are likely to contain natural gas deposits. Some of these areas are on land and some are offshore and deep under the ocean floor. Geologists often use seismic surveys on land and in the ocean to find the right places to drill wells. Seismic surveys on land use echoes from a vibration source at the surface of the earth, usually a vibrating pad under a special type of truck. Geologists can also use small amounts of explosives as a vibration source. Seismic surveys conducted in the ocean rely on blasts of sound that create sonic waves to explore the geology beneath the ocean floor. If a site seems promising, an exploratory well is drilled and tested. Once a formation is proven to be economic for production, one or more production (or development) wells are drilled down into the formation, and natural gas flows up through the wells to the surface. In the United States and a few other countries, natural gas is produced directly from shale and other types of rock formations that contain natural gas in pores within the rock. The rock formation is fractured by forcing water, chemicals, and sand down a well. This releases the natural gas from the rock, and the natural gas flows up the well to the surface. Wells drilled to produce oil may also produce associated natural gas. The natural gas withdrawn from a well is called wet natural gas because it usually contains liquid hydrocarbons and nonhydrocarbon gases. Methane and other useful gases are separated from the wet natural gas near the site of the well or at a natural gas processing plant. The processed natural gas is called dry or consumer-grade natural gas. This natural gas is sent through pipelines to underground storage fields or to distribution companies and then to consumers. Coal may contain coalbed methane, which can be captured when coal is mined. Coalbed methane can be added to natural gas pipelines without any special treatment. Another source of methane is biogas, which forms in landfills and in vessels called digesters. Most of the natural gas consumed in the United States is produced in the United States. Some natural gas is imported from Canada and Mexico in pipelines. A small amount of natural gas is also imported as liquefied natural gas.

The United States used about 27.49 trillion cubic feet (Tcf) of natural gas in 2016, the equivalent of 28.4 quadrillion British thermal units (Btu) and 29% of total U.S. energy consumption. Natural gas use by U.S. consuming sectors by amount and share of total U.S. natural gas consumption in 2016: Electric power—9.987 Tcf—36% Industrial—9.31 Tcf—34% Residential—4.35 Tcf—16% Commercial—3.11 Tcf—11% Transportation—0.74 Tcf—3% How natural gas is used in the United States Most U.S. natural gas use is for heating buildings and generating electricity, but some consuming sectors have other uses for natural gas. The electric power sector uses natural gas to generate electricity. In 2016, the electric power sector accounted for about 36% of U.S. natural gas consumption, and natural gas was the source of about 27% of the U.S. electric power sector's energy consumption. (Other consuming sectors also use natural gas to generate electricity.) The industrial sector uses natural gas as a fuel for process heating and for combined heat and power systems and as a raw material (feedstock) to produce chemicals, fertilizer, and hydrogen. In 2016, the industrial sector accounted for about 34% of U.S. natural gas consumption, and natural gas was the source of about 31% of the U.S. industrial sector's energy consumption. The residential sector uses natural gas to heat buildings and water, to cook, and to dry clothes. About half of the homes in the United States use natural gas for these purposes. In 2016, the residential sector accounted for about 16% of U.S. natural gas consumption, and natural gas was the source of about 22% of the U.S. residential sector's energy consumption. The commercial sector uses natural gas to heat buildings and water, to operate refrigeration and cooling equipment, to cook, to dry clothes, and to provide outdoor lighting. Some consumers in the commercial sector also use natural gas as a fuel in combined heat and power systems. In 2016, the commercial sector accounted for about 11% of U.S. natural gas consumption, and natural gas was the source of about 18% of the U.S. commercial sector's energy consumption. The transportation sector uses natural gas as a fuel to operate compressors that move natural gas through pipelines. A relatively small amount of natural gas is used as vehicle fuel in the form of compressed natural gas and liquefied natural gas. Nearly all vehicles that use natural gas as a fuel are in government and private vehicle fleets. In 2016, the transportation sector accounted for about 3% of total U.S. natural gas consumption. Natural gas was the source of about 3% of the U.S. transportation sector's energy consumption in 2016, of which 97% was for natural gas pipeline and distribution operations. Where natural gas is used Natural gas is used throughout the United States, but five states accounted for about 39% of total U.S. natural gas consumption in 2016: Texas—14.7% California—7.90% Louisiana—5.7% New York—5.0% Florida—4.8%

The United States uses many different energy sources and technologies to generate electricity. The sources and technologies have changed over time and some are used more than others. The three major categories of energy for electricity generation are fossil fuels (coal, natural gas, and petroleum), nuclear energy, and renewable energy sources. Most electricity is generated with steam turbines using fossil fuels, nuclear, biomass, geothermal, and solar thermal energy. Other major electricity generation technologies include gas turbines, hydro turbines, wind turbines, and solar photovoltaics. Fossil fuels are the largest sources of energy for electricity generation Natural gas was the largest source—about 32%—of U.S. electricity generation in 2017. Natural gas is used in steam turbines and gas turbines to generate electricity. Coal was the second-largest energy source for U.S. electricity generation in 2017—about 30%. Nearly all coal-fired power plants use steam turbines. A few coal-fired power plants convert coal to a gas for use in a gas turbine to generate electricity. Petroleum was the source of less than 1% of U.S. electricity generation in 2017. Residual fuel oil and petroleum coke are used in steam turbines. Distillate—or diesel—fuel oil is used in diesel-engine generators. Residual fuel oil and distillates can also be burned in gas turbines. Nuclear energy provides one-fifth of U.S. electricity Nuclear energy was the source of about 20% of U.S. electricity generation in 2017. Nuclear power plants use steam turbines to produce electricity from nuclear fission. Renewable energy sources provide nearly 20% of U.S. electricity A variety of renewable energy sources are used to generate electricity and were the source of about 17% of total U.S. electricity generation in 2017. Hydropower plants produced about 7% of total U.S. electricity generation and about 44% of electricity generation from renewable energy in 2017. Hydropower plants use flowing water to spin a turbine connected to a generator. Wind energy was the source of about 6% of total U.S. electricity generation and about 37% of electricity generation from renewable energy in 2017. Wind turbines convert wind energy into electricity. Biomass, the source of about 2% of total U.S. electricity generation in 2017, is burned directly in steam-electric power plants, or it can be converted to a gas that can be burned in steam generators, gas turbines, or internal combustion engine generators. Solar energy provided about 1% of total U.S. electricity in 2017. Photovoltaic (PV) and solar-thermal power are the two main types of solar electricity generation technologies. PV conversion produces electricity directly from sunlight in a photovoltaic cell. Most solar-thermal power systems use steam turbines to generate electricity. Geothermal power plants produced less than 1% of total U.S. electricity generation in 2017. Geothermal power plants use steam turbines to generate electricity.

Electricity prices generally reflect the cost to build, finance, maintain, and operate power plants and the electricity grid (the complex system of power transmission and distribution lines). Some for-profit utilities also include a financial return for owners and shareholders in their electricity prices. Several key factors influence the price of electricity: Fuels: Fuel costs can vary, especially during periods of high demand. High electricity demand can increase demand for fuel, such as natural gas, which can result in higher prices for the fuel and, in turn, higher costs to generate electricity. Power plants: Each power plant has construction, maintenance, and operating costs. Transmission and distribution system: The electricity transmission and distribution systems that deliver electricity have maintenance costs, which include repairing damage to the systems from accidents or extreme weather conditions. Weather conditions: Rain and snow provide water for low-cost hydropower generation. Wind can provide low-cost electricity generation from wind turbines when wind speeds are favorable. However, extreme temperatures can increase the demand for electricity, especially for cooling, and demand can drive prices up. Regulations: In some states, public service/utility commissions fully regulate prices, while other states have a combination of unregulated prices (for generators) and regulated prices (for transmission and distribution). Electricity prices are usually highest in the summer The cost to supply electricity actually changes minute by minute. However, most consumers pay rates based on the seasonal cost of electricity. Changes in prices generally reflect variations in electricity demand, availability of generation sources, fuel costs, and power plant availability. Prices are usually highest in the summer when total demand is high because more expensive generation sources are added to meet the increased demand. Electricity prices vary by type of customer Electricity prices are usually highest for residential and commercial consumers because it costs more to distribute electricity to them. Industrial consumers use more electricity and can receive it at higher voltages, so supplying electricity to these customers is more efficient and less expensive. The price of electricity to industrial customers is generally close to the wholesale price of electricity. In 2017, the annual average price of electricity in the United States was about 10.54¢ per kilowatthour (kWh). The annual average prices by major types of utility customers were Residential: 12.90¢ per kWh Commercial: 10.68¢ per kWh Industrial: 6.91¢ per kWh Transportation: 9.67¢ per kWh Electricity prices vary by locality Prices vary by locality because of the availability of power plants and fuels, local fuel costs, and pricing regulations. In 2017, annual average electricity prices ranged from approximately 26.07¢ per kWh in Hawaii to about 7.75¢ per kWh in Louisiana.

Electricity is delivered to consumers through a complex network Electricity is generated at power plants and moves through a complex system, sometimes called the grid, of electricity substations, transformers, and power lines that connect electricity producers and consumers. Most local grids are interconnected for reliability and commercial purposes, forming larger, more dependable networks that enhance the coordination and planning of electricity supply. In the United States, the entire electricity grid consists of hundreds of thousands of miles of high-voltage power lines and millions of miles of low-voltage power lines with distribution transformers that connect thousands of power plants to hundreds of millions of electricity customers all across the country. The stability of the electricity grid requires the electricity supply to constantly meet electricity demand, which in turn requires coordination of numerous entities that operate different components of the grid. The U.S. electricity grid consists of three large interconnected systems that operate to ensure its stability and reliability. To ensure coordination of electric system operations, the North American Electric Reliability Corporation developed and enforces mandatory grid reliability standards that the Federal Energy Regulatory Commission (FERC) approved. The origin of the electricity that consumers purchase varies. Some electric utilities generate all the electricity they sell using just the power plants they own. Other utilities purchase electricity directly from other utilities, power marketers, and independent power producers or from a wholesale market organized by a regional transmission reliability organization. The retail structure of the electricity industry varies from region to region. The company selling you power may be a not-for-profit municipal electric utility; an electric cooperative owned by its members; a private, for-profit electric utility owned by stockholders (often called an investor-owned utility); or in some states, you may purchase electricity through a power marketer. A few federally owned power authorities—including the Bonneville Power Administration and the Tennessee Valley Authority, among others—also generate, buy, sell, and distribute power. Local electric utilities operate the distribution system that connects consumers with the grid regardless of the source of the electricity. The process of delivering electricity The electricity that power plants generate is delivered to customers over transmission and distribution power lines. High-voltage transmission lines, like those that hang between tall metal towers, carry electricity over long distances to where consumers need it. Higher voltage electricity is more efficient and less expensive for long-distance electricity transmission. Lower voltage electricity is safer for use in homes and businesses. Transformers at substations increase (step up) or reduce (step down) voltages to adjust to the different stages of the journey from the power plant on long-distance transmission lines to distribution lines that carry electricity to homes and businesses. Evolution of the electric power grid At the beginning of the 20th century, more than 4,000 individual electric utilities operated in isolation from each other. As the demand for electricity grew, especially after World War II, utilities began to connect their transmission systems. These connections allowed utilities to share the economic benefits of building large and often jointly-owned electric generating units to serve their combined electricity demand at the lowest possible cost. Interconnection also reduced the amount of extra generating capacity that each utility had to hold to ensure reliable service during times of peak demand. Over time, three large, interconnected systems evolved in the United States. The Eastern and Western Interconnections in the United States are also linked with the Canadian power grid. The network structure of the interconnections helps maintain the reliability of the grid by providing multiple routes for power to flow and allowing generators to supply electricity to many load centers. This redundancy helps prevent transmission line or power plant failures from causing interruptions in service to retail customers. Balancing authorities manage grid operations These three interconnections describe the large-scale physical structure of the grid. The regional operation of the electric system is managed by entities called balancing authorities, whose primary job is to ensure that electricity supply constantly matches power demand. Most of the balancing authorities are electric utilities that have taken on the balancing responsibilities for a specific part of the power system. All of the regional transmission organizations in the United States also function as balancing authorities. ERCOT is unique in that the balancing authority, interconnection, and the regional transmission organization are all the same entity and physical system. A balancing authority ensures that electricity demand and supply are finely balanced to maintain the safe and reliable operation of the power system. If demand and supply fall out of balance, local or even widespread blackouts can result. Balancing authorities maintain appropriate operating conditions for the electric system by ensuring that a sufficient supply of electricity is available to serve expected demand, which includes managing transfers of electricity with other balancing authorities. Electric reliability organizations set standards for grid operations Electric utilities are responsible for maintaining the safety of their systems and planning for the future power needs of their customers. Initially, voluntary standards were developed by the electric power industry to ensure coordination of linked interconnection operations. Today, mandatory reliability standards for planning and operating power systems and for addressing security concerns at critical electrical infrastructure are in place. The North American Electric Reliability Corporation and its member organizations developed and enforce these standards, which FERC approved. In Canada, Canadian regulators fill this role. Construction of electricity infrastructure in the United States began in the early 1900s and investment was driven by new transmission technologies, central station generating plants, and growing electricity demand, especially after World War II. Now, some of the older, existing transmission and distribution lines have reached the end of their useful lives and must be replaced or upgraded. New power lines are also needed to maintain the electrical system's overall reliability and to provide links to new renewable energy generation resources, such as wind and solar power, which are often located far from where electricity demand is concentrated. Several challenges exist for improving the infrastructure of the grid: Siting new transmission lines (getting approval of new routes and obtaining rights to the necessary land) Determining an equitable approach for recovering the construction costs of a new transmission line built in one state when the line provides benefits to consumers in other states Addressing the uncertainty in federal regulations regarding who is responsible for paying for new transmission lines, which affects the private sector's ability to raise money to build transmission lines Expanding the network of long-distance transmission lines to renewable energy generation sites where high-quality wind and solar resources are located, which are often far from where electricity demand is concentrated Protecting the grid from physical and cyber attacks