SaskEnergy Incorporated First Quarter Report 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 $14 million margin on commodity sales for the nine months ending December 31, 2019 compared to a $29 million margin for the same period in 2018-19. Average revenue was $2.54 per GJ and average cost of gas sold was $2.17 per GJ, resulting in a margin of $0.37 per GJ. This margin is lower than the average commodity margin of $0.60 per GJ through the same nine month period in 2018-19. The effect of 10 PJs less gas sold in 2019-20 and the effect of a decreased commodity rate also contributed to the lower margin in 2019-20. Commodity rates were reduced from $2.95 per GJ to $2.57 per GJ effective April 1, 2019. Meanwhile the GCVA balance has decreased to $16 million owing to customers, down $1 million from the balance owing to customers at March 31, 2019. March 31, 2011 The realized margin on commodity sales of $11 million for the three months ended December 31, 2019 was $6 million lower than the same period in 2018-19. This is due to a higher cost of gas sold combined with the lower commodity rate.
Commodity Fair Value Adjustments
Fair value adjustments at December 31, 2019 had a $2 million unfavourable impact on the margin on commodity sales. The differential between the contract price and market prices increased during the nine months ending December 31, 2019, from $0.03 per GJ to $0.06 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. The volume of contracts identified and segregated for the purpose of expected commodity sales was 272 PJs at December 31, 2019, compared to 154 PJs at March 31, 2019. The increase is a result of the Corporation’s ability to enter into more purchase contracts at lower natural gas prices and for a longer period of time. The Corporation received approval from the Ministry of Finance during 2018-19 to enter into sale and purchase transactions with commitments 10 years forward with counterparties whose credit rating is AA or higher. In the current low natural gas price environment, this will allow the Corporation to commit to long term contracts at low natural gas prices.
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 third party transportation expenses, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods while minimizing its exposure to price risk. In most cases the purchases and sales are executed at the same time, thereby mitigating much of the price risk that would normally be associated with such transactions.
The asset optimization margin, as reported in the consolidated financial statements, was as follows:
Three months ended
Nine months ended December 31
December 31
(millions)
2019
2018 Change 2019
2018 Change
Asset optimization sales
$
39 40
$
54 46
$
(15)
$
105
$
170 161
$
(65) (62)
Asset optimization purchases
(6)
99
Realized margin on asset optimization sales Impact of fair value adjustments Revaluation of natural gas in storage
(1) (6)
8
(9)
6
9
(3)
17
(23)
(33)
(7)
(26) (11)
3
(2)
5
3
14
Margin on asset optimization sales
$
(4)
$
23
$
(27)
$
(24)
$
16
$
(40)
7
2019-20 THIRD QUARTER REPORT
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