Management’s Discussion and Analysis
North American demand surged to record highs as extreme cold covered most of the continent in late December. US production briefly fell by over 14 per cent as freeze-offs during the severe cold limited supply. This occurred in tandem with a 33 per cent increase in demand for gas used as heat and power generation during the cold snap. This was primarily felt in the western United States, where limited import capacity restricted available supply. Prices from Wyoming to California were over three times higher than the prices seen before the cold snap. Western Canadian production performed better through the cold weather, with higher demand setting four consecutive record-high demand days in Alberta. Freeze-offs did occur through the cold weather, but Canadian production and storage withdrawals were able to meet domestic demand plus generate exports levels not seen since March of 2014. Ongoing delays to projects in Alberta and the associated maintenance curtailments to interruptible export service continued to cause low and volatile prices through the end of October 2022 – with prices generally fluctuating between $0.00 per GJ and $4.50 per GJ. The end of maintenance season and the fear of cold weather stabilized higher prices in the range of $5.00 to $7.50 per GJ. The end of December’s cold weather consolidated prices in the $3.50 to $4.00 per GJ range as the fourth quarter began. Looking forward, incremental throughput is expected with the completion of key Alberta projects in February 2023, however, a busy maintenance season forecasted for summer 2023 may yield another volatile price environment. Saskatchewan Natural Gas With the provincial economy continuing to recover and an improved outlook for the value-added agricultural sector, potash mining, enhanced oil recovery and power generation, there is greater potential for increased demand over the next few years. Increasing regulatory obligations and carbon prices do present risks for energy-intensive industries. Local supply continues to trend downward, increasing dependence on associated gas with local oil production. Local demand continues to be increasingly met by imported supply. The completion of Alberta projects should improve the link between the provinces, but the availability of incremental transport will remain a high-priority variable. Natural Gas Prices The AECO daily index averaged $4.84 per GJ through the three months ended December 31, 2022, representing a relatively small increase from $4.41 per GJ for the same period ended December 31, 2021. Upstream system maintenance caused significantly higher market volatility, though the absolute price level was relatively close to 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 third quarter averaged a $0.58 per GJ premium compared to $0.11 per GJ the year prior. The difference can again be attributed to the additional weeks of maintenance that depressed Alberta prices early in the quarter. The AECO to TEP price differential declined near the end of the quarter and was more reasonably priced through the winter months. The following chart shows AECO natural gas prices:
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