The asset optimization margin, as reported in the consolidated financial statements, was as follows:
Three months ended
Six months ended September 30
SaskEnergy Incorporated First Quarter Report
September 30
March 31, 2011
(millions)
2019
2019 Change
2019
2018 Change
Asset optimization sales
$
31 28
$
61 59
$
(30) (31)
$
66 59
$
116 115
$
(50) (56)
Asset optimization purchases
Realized margin on asset optimization sales Impact of fair value adjustments Revaluation of natural gas in storage
3
2
1
7
1
6
(19)
(3)
(16)
(27)
(24)
(3)
2
4
(2)
-
16
(16)
Margin on asset optimization sales
$
3
$
(17)
$
(7)
$
(13)
$
(14)
$
(20)
The realized margin on asset optimization sales at September, 2019, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $7 million. This is $6 million higher than the $1 million margin for the same period in 2018-19. The Corporation increased its asset optimization margin by selling higher volumes of natural gas at lower margins compared to the same period in 2018-19. This was accomplished when near term natural gas prices decreased through the six months ending September 30, 2019. Some transportation capacity within Alberta was also secured through asset optimization transportation contracts to meet customer obligations. These transportation contracts had an unfavourable effect on the 2019-20 asset optimization margin.
Asset Optimization Fair Value Adjustments
The Corporation enters into various natural gas contracts (swaps and forwards) in its asset optimization strategies, which are subject to volatility of natural gas market prices. The fair value adjustment at September 30, 2019 on asset optimization derivative instruments decreased the asset optimization margin by $27 million compared to a decrease of $24 million for the same period in 2018-19. Between April 1, 2019 and September 30, 2019, near term natural gas market prices declined, allowing the Corporation to enter into lower priced natural gas purchase and sale transactions simultaneously. The purchase contracts outstanding at September 30, 2019 were $0.01 per GJ less than market price, while purchase contracts outstanding at the end of March 31, 2019 were $0.46 per GJ less than market price. This decrease in the favourable price differential in 2019-20 is responsible for an unfavourable fair value adjustment, which was slightly offset by the favourable variance related to the increase in price differentials on outstanding sale contracts.
Revaluation of Natural Gas in Storage
At each reporting period, the Corporation measures the net realizable value of natural gas in storage held for asset optimization transactions based on forward market prices and anticipated delivery dates. The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. Through the first six months of 2019-20, the Corporation was able to purchase lower priced natural gas and inject it into storage, reducing the average cost of natural gas in storage; however, lower near term forward market prices adversely affected net realizable value. Consequently, the net realizable value of asset optimization natural gas in storage was $14 million below cost at September 30, 2019, which is equal to the $14 million unfavourable revaluation adjustment at March 31, 2019, resulting in no change in the revaluation of natural gas in storage at September 30, 2019.
Revenue
Delivery revenue, transportation and storage revenue, customer capital contributions and other revenue, as reported in the consolidated financial statements, were as follows:
Three months ended September 30
Six months ended September 30
(millions)
2019
2018 Change
2019
2018 Change
Delivery revenue
$
43 36
$
(2)
$
95 73
$
-
$
41 48 11
$
95 94 20
Transportation and storage revenue Customer capital contributions
12
21 13
4 2
7
7 4
Other revenue
(2)
(4)
-
-
Revenue
$
85
$
15
$
179
$
30
$
100
$
209
7
2019-20 SECOND QUARTER REPORT
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