INDUSTRY OVERVIEW
SaskEnergy monitors a number of important factors that could influence financial performance.
Oil Market Volatility The prior fiscal year ended with the entire global energy complex in a state of uncertainty. Pandemic-related demand destruction combined with a geo-political supply glut had resulted in crude oil prices falling by over 60 per cent. The first two months of this fiscal year continued the trend of uncertainty and volatility. The end of April saw West Texas Intermediate (WTI) crude oil prices trade below negative $30 per barrel as traders were faced with the prospect of continued low demand and a lack of storage to balance the market.
Prices quickly recovered to around $40 per barrel, and remained range-bound for the entirety of fiscal Q2.
Market volatility returned during the third quarter with oil prices closing the quarter up over 30 per cent. Price strength is partially a result of slowly returning global demand, but there seems to be some other macroeconomic factors at play. The quarter saw strength throughout nearly all commodity markets – particularly grains, most of which are now trading well above pre-pandemic levels. A return to higher oil prices has seen oil production and associated gas production rebound from the pandemic- induced lows, but rig counts have been much slower to recover, and may yet require a further move up in price. Lower oil production in North Dakota has resulted in increased demand for Canadian gas to serve markets in the U.S. Midwest. Natural Gas Prices Globally, natural gas prices followed the trend of the other commodities. Cold weather in Western Europe and Asia have caused a Tesla-like rally in LNG prices. Asian LNG prices began the fiscal year nearly flat to North American gas prices despite the incremental variable and shipping costs; since then Asian prices have increased more than ten- fold. Despite the connection between global demand and North American supply, prices in North America have seen only a muted response due to constrained transportation (a shortage of ships and a bottleneck at the Panama Canal). Western Canadian gas prices have been responsive to local weather, meaning generally low prices with some volatility caused by changes to the weather forecasts. After a historically strong storage injection season, Western Canada has seen robust storage withdrawals, despite a mild winter, bringing storage levels back in-line with the five year average, yet still well above last year. Looking forward, some of the potential uncertainty is finally falling out of the market. The NGTL 2021 Expansion project, including additional capacity for SaskEnergy, has received all approvals. Due to regulatory delays the project’s construction is a year behind schedule, though existing system capacity should limit curtailments this summer. To address this concern, NGTL’s Temporary Service Protocol is currently before the Canada Energy Regulator for a potential extension through October 2021. A result is expected before the end of the fiscal year. The AECO daily index averaged $2.17 per GJ throughout the nine months ended December 31, 2020 compared to $1.39 per GJ the year prior. Traditionally, most natural gas in Saskatchewan (TEP) is priced at a differential to the AECO price. This AECO to TEP differential for the nine months ended December 31, 2020 averaged $nil compared to
2020-21 Third Quarter Report
6
Made with FlippingBook Ebook Creator