Management’s Discussion and Analysis
OPERATING ENVIRONMENT
increased dependence on associated gas; this leaves local supply highly dependent on the volatile global oil market. Low oil prices and capital restraint in the early days of the pandemic may have contributed to lower supply through fiscal 2020-21. Reduction to the demand forecast was driven by customer de-contracting and lower utilization of remaining contracts.
SaskEnergy monitors a number of important factors that could influence financial performance. Energy Transition Uncertainty It has been more than a year since the start of a global pandemic; however, the energy complex still retains a high level of uncertainty. While the short-term outlook may show some stability, the medium-to-long term remains unclear as countries and companies plan for a complicated future. More than 70 per cent of natural gas produced in Saskatchewan is associated with oil production. A collapse in oil prices at the start of the pandemic resulted in minimal oil wells drilled in Saskatchewan for a good part of 2020, leading to a decline in provincial natural gas supply. Oil prices have since fully recovered to their pre-pandemic levels with global demand nearing 2019 levels despite continued restrictions to energy intensive industries — particularly travel. Early 2021-22 is likely to see incremental production out of OPEC countries; this production should be met with incremental demand or, at the very least, available storage capacity. Regulatory uncertainty remains a significant concern. In January, the Keystone XL presidential permit was rescinded, limiting future export capacity for Alberta’s oil sands. Incremental capacity is still expected from the Trans Mountain expansion to the West Coast, though construction has been delayed to mitigate potential damage to migratory bird populations. The U.S. Army Corps of Engineers is expected to proceed with an environmental impact assessment on the Dakota Access Pipeline; this is notable as these assessments typically occur prior to construction, but the line has been active since 2017. The line is expected to remain in-service awaiting the results of the assessment, though that status remains at risk. Regulatory uncertainty is not confined to high-profile oil pipelines, as local gas projects are also affected. In a near identical situation as the NGTL 2021 Expansion delay that directly impacted SaskEnergy contracts, NGTL’s Edson Mainline project has been delayed due to final federal approvals. SaskEnergy has no contractual association with this project, but benefits from facilities that balance supply and demand in Alberta. Natural Gas Demand Despite a decade of dramatically shifting changes to the provincial supply-demand balance, this year’s changes to forecasted supply and demand stand out for their size year-on-year. Local supply continues to trend toward
CHANGE IN SASK SUPPLY & DEMAND
450 400
NET IMPORTER
NET IMPORTER
NET EXPORTER
OLD FORECAST
350
NEW FORECAST
300
250 200 150 100 50 0
ALBERTA SUPPLY
SASK SUPPLY DECLINING FASTER THAN PREVIOUSLY FORECASTED
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015
2021 2024 2018
2019 Sask Supply Forecast 2019 Sask Load Forecast
Saskatchewan Load Sask Load Forecast
Saskatchewan Supply 2020 Sask Supply Forecast
Natural Gas Prices Despite future uncertainty, existing facilities in Alberta and Saskatchewan performed well through a very challenging winter season. Winter in Saskatchewan was one per cent warmer than normal, but the province and the continent experienced an extreme cold weather event through the middle of February. Local production was reduced by approximately 20 per cent due to freeze-offs and this deficit was met with historically large draws from seasonal storage. Energy suppliers in the United States are not as well equipped to manage such weather extremes and, as a result, saw a number of short-term price anomalies. Some gas in Oklahoma traded for as much as US$1,250/MMbtu (~CDN$1,400/gigajoule (GJ)). Freezing nuclear and renewable sources further complicated the situation in Texas leaving millions without power for days. Looking forward, some Alberta curtailments are expected through summer 2021 as delayed projects are finally placed into service (summer curtailments occur
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