Management’s Discussion and Analysis
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 consolidated financial statements, was as follows:
March 31, 2021
March 31, 2020
(millions)
Change
$
117 121
Asset optimization sales
$
144 142
$
(27)
Asset optimization purchases
21
(4)
2
(6)
Realized margins on asset optimization sales
7 7
Unrealized fair value adjustments Revaluation of natural gas in storage
(36)
43
7
-
$
10 $
(27) $
37
Margin on asset optimization sales
During 2020-21, the average margin on realized asset optimization sales was $0.07 per GJ unfavourable. The margin is $0.09 per GJ lower than the favourable average margin of $0.02 per GJ through the same 12-month period in 2019-20. Natural gas market prices demonstrated less volatility through the 12 months ending March 31, 2021 compared to the same period in 2020, limiting SaskEnergy’s asset optimization opportunities as sales volumes decreased 21 PJs in 2020-21 compared to 2019-20.
The realized margin on asset optimization sales for the 12 months ending March 31, 2021, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $6 million lower than the same period ending March 31, 2020. In the fall of 2020, TC Energy was able to bring new gas line facilities into service, thereby allowing for more natural gas to flow out of Alberta. Natural gas production in Alberta was previously constrained by limited gas line capacity. This resulted in AECO prices strengthening to be more in line with North American natural gas prices. Asset Optimization Fair Value Adjustments The Corporation enters into various natural gas contracts in its asset optimization strategies, which are subject to volatility of natural gas market prices until the natural gas contracts are realized. The impact of the unrealized fair value adjustment on asset optimization derivative instruments increased the margin on asset optimization sales by $7 million compared to a decrease of $36 million for the same period in 2019-20. Stronger natural gas market prices resulted in the price differential between contract prices and market prices on future asset
optimization purchase contracts improving to $0.12 per GJ favourable at March 31, 2021 compared to an unfavourable price differential of $0.20 per GJ at March 31, 2020. This $0.32 per GJ favourable change in the price differential on asset optimization purchase contracts in 2020-21 resulted in a $10 million favourable fair value adjustment. This was partially offset by the $3 million unfavourable variance related to a $0.21 per GJ increase in the unfavourable price differentials on outstanding asset optimization sale contracts.
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