Management’s Discussion and Analysis
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, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods.
In most cases, the Corporation executes purchase and sales contracts 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 consolidated financial statements, was as follows:
(millions)
March 31, 2024 March 31, 2023
Change
$
141 $
Asset optimization sales
336 $
(195) (178)
129
Asset optimization purchases
307
12
Realized margin on asset optimization sales
29
(17)
(2)
Unrealized fair value adjustments Margin on asset optimization sales
1
(3)
$
10 $
30 $
(20)
The realized margin on asset optimization sales for the 12 months ending March 31, 2024, which removes fair value adjustments on derivative instruments, was $17 million lower than the same period ending March 31, 2023. During 2023-24, the average margin on realized asset optimization sales was $0.22 per GJ. This was $0.22 per GJ lower than the average margin of $0.44 per GJ through the same 12-month period in 2022-23. Declining natural gas market prices and less volatility through 2023-24 compared to 2022-23 allowed for significantly fewer asset optimization opportunities for the Corporation in 2023-24. Asset Optimization Fair Value Adjustments Through asset optimization strategies, the Corporation enters into various natural gas contracts which are subject to volatility of natural gas market prices until the natural gas contracts are realized.
The unrealized fair value adjustment on outstanding asset optimization derivative instruments had an unfavourable impact of $2 million on the asset optimization margin. Declining natural gas market prices through 2023-24 resulted in the differential between contract prices and market prices on future asset optimization sales contracts decreasing to $0.03 per GJ unfavourable at March 31, 2024, compared to a favourable price differential of $0.28 per GJ at March 31, 2023. This $0.31 per GJ unfavourable change in the price differential on asset optimization sales contracts in 2023-24 resulted in a $5 million unfavourable fair value adjustment. This was almost fully offset by a $3 million favourable price differential related to an $0.18 per GJ decrease in the unfavourable price differential on outstanding asset optimization purchase contracts.
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