As national benchmark spot prices in natural gas have risen modestly with temperatures increases and electricity demand ramping up, prices in California continue to face pressures and remain low.

With California’s mandate on renewables that 33% of its power sources must come from sources such as solar and wind energy by 2020 and 50% must be derived by 2030, natural gas prices will encounter more headwinds, said Bruce Bullock, director of the Maguire Energy Institute at Southern Methodist University's Cox School of Business in Dallas.

“Given California’s renewable mandates for the grid and now for homeowners building new homes, we can expect continued pressure on natural gas prices from renewables,” he said. “There has been a flood of renewables coming onto the market. For the first time, solar photovoltaic and thermal solar generation exceeded natural gas generation in May.”

Henry Hub prices remain under $3/MMBtu, even though they have risen slightly as electricity demands increase during the summer. As of June 20, the Energy Information Administration (EIA), the independent statistical arm of the Department of Energy based in Washington, D.C., reported that Henry Hub spot price for next-day delivery rose $0.01 from $2.94/MMBtu from the previous week to $2.95/MMBtu.

While natural gas prices are low at this point, prices rose by 27% in 2017, according to the California Independent System Operator, which manages the grid.

“To a certain extent, they are returning to the mean,” Bullock said. “On the upside, accelerated retirement of the state’s nuclear plants will leave a generation gap in the early 2020s that a source will have to fill.”

Natural gas demand in California is flat and demand is not likely to increase due to the big push in renewables even though the state ranked second in gas consumption in 2016, said Matthew Lewis, a CFA and director of financial analysis at East Daley Capital in Centennial, Colo.

“There is not a growing demand for the natural gas market,” he said.

The rise in drilling for crude oil in the Permian Basin has placed downward pressure on its byproduct, natural gas, so prices will likely move within this current range for 2018.

“The prices are low because of the Permian Basin and in some ways, the production being generated from Canada and the Rockies,” Lewis said.

Even at $2.50/MMBtu, natural gas producers in many areas of the country can still make money, said Lewis. Depending on the region, natural gas prices range from $2.90/MMBtu to $3/MMBtu at the Henry Hub in Louisiana and $1.50/MMBtu to $2.50/MMBtu outside of the southeast region of the U.S.

Prices for natural gas priced dipped from the highs of $6/MMBtu to $8/MMBtu within the past 10 years before fracking gained momentum starting around 2006 to 2008, he said.

“The supply increased so much it drove down the prices,” Lewis said.

With production continuing steadily, the “new normal price” is in the $2.5/MMBtu to $3/MMBtu range.

Demand in natural gas could rise slightly as more consumers turn towards purchasing electric vehicles in California, which are powered by electricity that is generated from natural gas.

“Any of the incremental growth from power demand will come from renewables which are often heavily subsidized,” he said.

Even as sales of electric vehicles increase, powering these vehicles will not make up the demand for natural gas as more renewable energy comes online, said Patrick Morris, who is CEO of New York-based HAGIN Investment Management.

The demand for natural gas is fading each year since California is one of a few states which has a hard emission cap. Exporting gas from California is not feasible since there lacks any plants to liquiey and ship it, he said.

Prices in southern California remain volatile since the region is battling infrastructure contraints with storage and pipeline limitations. These issues could affect how reliable electricity is this summer, according to an EIA report.

SoCalGas has experienced both planned and unplanned natural gas pipeline outages since October 2017 which have lowered the ability to bring natural gas into Southern California.

Based on the May 7, 2018 SoCalGas maintenance schedule, pipeline repairs are not expected to be completed until the end of summer. The key pipelines—Lines 4000, 235-2, and 2000—do not show a scheduled completion date. The capacity from the pipelines for this summer is about 0.53 Bcf/d lower compared to lats summer during the same time period, however storage deliverability is 0.4 Bcf/d higher.

These ongoing issues could also affect the winter season, the EIA report said.