Management’s Discussion and Analysis
Inflation Canada’s Consumer Price Index (CPI) inflation through 2024 has significantly declined from a high of 2.9 per cent in May, to a low of 1.6 per cent in September, before rising slightly to 1.8 per cent in December of 2024. The Bank of Canada remains committed to maintaining price stability for Canadians by keeping inflation close to the 2.0 per cent target. Consequently, inflation has remained within or below the Bank of Canada’s midpoint target of 2.0 per cent for the fifth consecutive month, reinforcing current expectations of further interest rate cuts through 2025. The Bank of Canada increased its policy rate from 0.25 per cent in the first quarter of 2022 to a peak of 5.25 per cent in July 2023, before implementing a series of reductions in 2024, bringing the rate down to 3.25 per cent by December 2024. Private sector economists anticipate further reductions to 2.75 per cent by mid-2025, which is the mid-point of the nominal neutral interest rate range estimated by the Bank of Canada. Labour market Saskatchewan’s unemployment rate is slightly lower than the national rate, with an average rate of 5.9 per cent in December 2024. Saskatchewan's labor market has shown impressive performance, boasting one of the lowest unemployment rates across Canada. This is largely due to healthy labor demand, particularly within the public services sphere. Saskatchewan Natural Gas Prices Despite the expectation for increased demand from the anticipated start-up of operations at LNG Canada’s facility in Kitimat, British Columbia, Western Canadian natural gas prices remained low through 2024, as high production and high storage levels were met with both modest demand and modest seasonal pipeline maintenance. The result being Western Canadian natural gas prices have diverged significantly from the rest of North America. Despite the low prices at AECO, gas prices in other parts of North America have surged due to colder-than-average temperatures. This discrepancy is attributed to seasonally low internal demand in Western Canada resulting in seasonally high natural gas storage levels while export capacity remains maximized. In total, Western Canada’s natural gas output was 19.05 Bcf/d in November, while December production reached a new record of 19.33 Bcf/d. LNG Canada partners contributed a record 2.26 Bcf/d in November, however, gas intake developments for LNG Canada remain uncertain, with irregular gas flow and recent announcements indicating delays in commissioning activities at the liquefaction site. December, for parts of Canada, did turn out to be cold and contributed to reasonable natural gas storage withdrawals, specifically in Alberta and Saskatchewan. Western Canada storage levels at December 2024 were approximately 84 per cent full, which is 35 per cent higher than the three-year average of 62 per cent full and approximately 7 per cent higher than December 2023 storage levels of 79 per cent full. Again, production levels remained constant while seasonal demand has been lower than normal. Saskatchewan storage levels of 68 per cent full at December 31, 2024 are lower than December 2023 storage levels of 72 per cent full and higher than the three-year average of 65 percent full. The extremely low AECO prices were expected to rise through the three months ended December 31, 2024, as increasing near term demand for natural gas from heating, power and liquified natural gas exports was anticipated. However, AECO natural gas prices were characterized by lower volatility and largely remained below $1.00 per gigajoule (GJ) between mid- June through to October. Prices averaged $0.55 per GJ through the month of October before increasing to an average of $1.88 per GJ through the month of December, as the impact of the winter heating season began to take effect. High natural gas storage levels have also been a factor in Saskatchewan. The AECO daily index averaged $1.40 per GJ through the quarter, compared to $2.18 per GJ the prior year as warmer temperatures and relatively full storage levels contributed to the low-price environment. Traditionally, most natural gas in Saskatchewan is priced at a differential to the AECO price, with this differential for the quarter averaging a premium of $0.14 per GJ compared to $0.07 per GJ the year prior.
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