Commodity Fair Value Adjustments
For the nine months ended December 31, 2020, the fair value adjustment commodity derivative instruments increased the margin on commodity sales by $4 million as the $4 million favourable fair value position at March 31, 2020 increased to $8 million favourable at December 31, 2020. The favourable price differential between contract prices and market prices on future commodity purchase contracts increased to $0.19 per GJ at December 2020 compared to a favourable price differential of $0.08 per GJ at March 31, 2020.
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.
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 transportation constraints, 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. 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 condensed consolidated financial statements, was as follows:
Three months ended December 31,
Nine months ended December 31,
2020
2019 Change
2020
2019 Change
(millions)
$
24 24
$
94 98
Asset optimization sales
$
39 40
$
(15)
$
105
$
(11)
Asset optimization purchases
16
99
1
-
(4)
Realized margin on asset optimization sales Impact of fair value adjustments Revaluation of natural gas in storage
(1) (6)
1 9
6
(10)
3
8 6
(33)
41
-
3
(3)
3
3
$
3
$
10
Margin on asset optimization sales
$
(4)
$
7
$
(24)
$
34
The realized margin on asset optimization sales for the nine months ended December 31, 2020, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was a $4 million loss, $10 million lower than the $6 million favourable margin for the same period in 2019. At the beginning of October 2019, TC Energy enacted a Temporary Service Protocol, which reduced natural gas price volatility while contributing to stronger natural gas pricing. During 2020, average revenue was $2.10 per GJ and average cost of gas sold was $2.20 per GJ, resulting in an unfavourable margin of $0.10 per GJ. The margin is $0.21 per GJ lower than the favourable average commodity margin of $0.11 per GJ through the same nine month period in 2019-20. Reducing natural gas price volatility also limited SaskEnergy’s asset optimization opportunities, as asset optimization sales volumes decreased 10 PJs in 2020 compared to 2019, resulting in a $1 million unfavourable volume variance.
2020-21 Third Quarter Report
10
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