Gas Marketing and Commodity Margins
SaskEnergy Incorporated First Quarter Report While long term natural gas prices have slightly decreased from the end of March 2017, near term natural gas prices have declined. Over a longer period, forward gas prices have displayed a flat to slightly increasing trend suggesting that the likelihood of significantly higher prices in the future is low. Current market prices are fairly representative of long term prices, resulting in the differential between current and forward prices being fairly small. This differential is the driver for much of SaskEnergy’s gas marketing activity in the past, with the exception of summer to winter spreads. These market conditions adversely affect the prospect for generating the high margins required to support SaskEnergy’s non-core storage business. The Corporation may be able to take advantage of TCPL mainline through diversions to other locations when capacity is underutilized which would extend the favourable gas marketing results through the last quarter. March 31, 2011 The November 1, 2016 commodity rate reduction to $3.65 per GJ will continue to reduce commodity revenue during 2017-18; however, lower natural gas market prices are expected to reduce the average cost of gas by an equal amount. Consequently, favourable margins are expected to continue through to the end of March 31, 2018 on commodity sales. As part of the normal course of business, commodity rates are reviewed regularly and adjusted as required.
Summary
Although, SaskEnergy’s financial performance is expected to remain strong, there are risks to the outlook. Capital expenditure requirements and rising costs will remain a challenge throughout the forecast period as SaskEnergy adjusts to continued customer load growth, infrastructure renewal requirements, shifting natural gas supply dynamics and regulatory compliance. Delivery and transportation revenue will continue to grow, partially offset by increased operating costs. SaskEnergy will continue to focus on providing safe and reliable service to its customers and investing in safety and growth initiatives while actively seeking operating and capital deployment efficiencies through collaboration and technology initiatives. Weather wil l be a key factor affecting 2017-18 financial results. Forecasted results are based on normal weather as defined by the 30-year average. To the extent that weather is colder than normal, delivery revenue will increase, and to the extent that weather is warmer than normal, delivery revenue will be lower. Assuming weather is not extremely cold, transportation, storage, and other revenue items are typically not impacted by weather, as is the case with operating expenses. Commodity revenue and gas purchases are both affected by weather but typically offset each other.
11
2017-18 THIRD QUARTER REPORT
Made with FlippingBook Ebook Creator