Management’s Discussion and Analysis
Commodity Fair Value Adjustments For the six months ending September 30, 2024, the fair value adjustment on commodity derivative instruments decreased the margin on commodity sales by $5 million. The unfavourable price differential of $0.29 per GJ between contract prices and market prices on future commodity purchase contracts at March 31, 2024, further declined $0.20 per GJ, to an unfavourable price differential of $0.49 per GJ at September 30, 2024. SaskEnergy segregates a portion of its natural gas purchase contracts for gas that will ultimately be sold to commodity customers. Under IFRS, such own-use 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, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods. In most cases, the Corporation executes purchase and sales contracts at the same time, thereby mitigating much of the price risk that would normally be associated with such transactions. SaskEnergy also uses purchases and sales of natural gas to mitigate transportation constraints, which are executed at a cost. The asset optimization margin, as reported in the condensed consolidated financial statements, was as follows:
Three months ended September 30,
Six months ended September 30,
(millions)
2023 Change
2024
2023 Change 2024
$
14 12
$
27 24
Asset optimization sales
$
38 33
(24) (21)
$
$
75 69
$
(48) (45)
Asset optimization purchases
2
3
6
(3)
Realized margin on asset optimization sales Unrealized fair value adjustments Revaluation of natural gas in storage
5
(3)
(2)
- -
(2)
-
(3)
3
1 1
-
1
-
- -
$
$
3
Margin on asset optimization sales
$
3
(2)
$
$
3
$
The realized margin on asset optimization sales for the six months ended September 30, 2024, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $3 million lower than in 2023. During 2024, the average margin on realized asset optimization sales was $0.13 per GJ, which was $0.10 per GJ lower than the $0.23 per GJ margin in 2023. Declining natural gas market prices and less volatility through 2024 compared to 2023, allowed for 2.7 PJ fewer asset optimization opportunities for the Corporation, resulting in $48 million lower sales and $45
million lower purchases in 2024 compared to 2023. Asset Optimization Fair Value Adjustments
Through asset optimization strategies, the Corporation enters into various natural gas contracts which are subject to volatility of natural gas market prices until the natural gas contracts are realized. The unrealized fair value adjustment on outstanding asset optimization derivative instruments had an impact of $nil on the asset optimization margin. Declining natural gas market prices through 2024 resulted in the differential between contract prices and market prices on future asset optimization sales contracts improving $0.04 per GJ, resulting in a $1 million favourable fair value adjustment. This was equally offset by the price differential on future asset optimization purchase contracts declining $1 million.
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