allowing purchase prices to follow market prices. As a result, the balance between the two objectives may change depending on current market conditions.
In order to ensure a secure supply of natural gas, SaskEnergy contracts for the physical delivery of natural gas using non-financial derivatives, referred to as forward or physical natural gas contracts. The purchase price contained in these forward contracts may be fixed, or it may be based on a variable index price. While fixed price contracts reduce the impact of natural gas price volatility, variable or market prices can assist in offering competitive rates depending on the pricing environment. SaskEnergy may use financial derivatives and physical swaps to manage the future purchase price of natural gas.
The commodity margin on sales to customers, as reported in the condensed consolidated financial statements, was as follows:
Three months ended June 30,
(millions)
2020
2019
Change
Commodity sales
$
20 18
$
5
$
25 24
Commodity purchases
(6) (1)
Realized margin on commodity sales
1 5
2
Impact of fair value adjustments
(1)
6
Margin on commodity sales
$
6
$
1
$
5
The realized margin on commodity sales excludes the impact of unrealized fair value adjustments on derivative instruments, as these adjustments can fluctuate significantly from one period to the next and do not necessarily represent the amount that will be paid upon settlement of the related natural gas contract. The Corporation realized a $1 million margin on commodity sales for the three months ended June 30, 2020 compared to the $2 million margin for the same period ended June 30, 2019. Average revenue was $2.51 per GJ and average cost of gas sold was $2.39 per GJ, resulting in a margin of $0.12 per GJ. The margin is lower than the average commodity margin of $0.30 per GJ through the same three month period in 2019-20. The effect of higher cost of gas sold in 2020-21 was partially offset by higher volumes sold compared to prior year. Meanwhile the GCVA balance has decreased to $9 million owing to customers, down $4 million from the balance owing to customers at March 31, 2020.
Commodity Fair Value Adjustments
The fair value adjustments at June 30, 2020 increased the margin on commodity sales by $5 million as the $4 million favourable fair value position at March 31, 2020 increased to $9 million favourable at June 30, 2020. The favourable differential between the contract price and market prices on commodity purchase contracts increased during the three months ending June 30, 2020 from $0.08 per GJ to $0.18 per GJ.
SaskEnergy segregates a portion of its natural gas purchase contracts for gas that will ultimately be sold to commodity customers. Under IFRS, such contracts are not required to be reported at market value.
Asset Optimization Margin
SaskEnergy uses its access to natural gas markets to execute purchases and sales of natural gas to generate margins. By utilizing off peak transportation and storage capacity and to help mitigate transportation constraints, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between
2020-21 First Quarter Report
9
Made with FlippingBook Ebook Creator