Management’s Discussion and Analysis
Operating Environment SaskEnergy monitors a number of important external factors that could influence financial performance. Global Volatility Collapse Follows Last Year’s Price Collapse Global energy markets have been characterized by a return to low volatility, with natural gas having a dramatic year-over-year drop in both price and volatility. The latter half of 2022-23 saw the U.S. benchmark price for natural gas fall by 80 per cent or roughly $10 per GJ; by contrast, 2023-24 saw pricing of less than $3 per GJ throughout the period. U.S. benchmark gas traded below a price that has only been breached four other times since 2000, and these extreme low- price events occurred through the winter heating season. This price movement was echoed around the world as the European benchmark traded below the previous year’s low throughout 2023-24. European storage also exited the winter heating season with record high inventories — again. Consistent with recent years, global markets continue to see increasing correlation as the global liquefied natural gas (LNG) market share grows with respect to global imports and exports. North American liquefaction capacity did not grow through 2023, but the brief pause is ending as Canada’s LNG facility in Kitimat, British Columbia, is expected to begin operations in 2024-25 and start acquiring gas from Alberta and B.C. The key supporters of this facility have already begun ramping up production in preparation for the first new Canadian exports of LNG. Potential expansions in North America, including LNG Canada’s second phase, could see total export capacity double over the next six years. In Western Canada, the 2023-24 winter heating season was characterized by warm weather, low natural gas prices, and moderate market price volatility, with the exception of one week. The bitter cold in mid-January caused a brief period of extremely volatile pricing. Receipts across Western Canada and the U.S. were dramatically impaired
by freeze-offs, including a 35 per cent decline in Saskatchewan’s production. In addition, exports out of Alberta were hindered; however, TransGas was able to meet a new all-time high peak demand with only a single localized service restriction. Saskatchewan Prices Consistent with global energy markets, Saskatchewan’s natural gas prices were characterized by lower volatility and prices through 2023-24. This was primarily responsible for less profitable asset optimization opportunities compared to 2022-23. SaskEnergy’s portfolio of transportation and storage capacity continues to be sized for expected demand in the province, and prudent asset management is intended to reduce the overall cost of this portfolio. The AECO daily index averaged $2.33 per GJ through the 12 months ending March 31, 2024. The year-over-year decrease from $4.68 per GJ was primarily a function of lower prices across the entire continent. Traditionally, most natural gas in Saskatchewan is priced at a differential to the AECO price, with this differential for 2023-24 averaging a premium of $0.07 per GJ compared to $0.71 per GJ the year prior. This decline can be attributed to the pipeline maintenance season in Alberta being less impactful in 2023-24, as Alberta export capacity was readily available on a daily basis, keeping AECO prices in line with locations downstream.
AECO Monthly Index Historical Prices
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