Management’s Discussion and Analysis
INTRODUCTION The Management’s Discussion and Analysis (MD&A) highlights the primary factors that affected SaskEnergy’s consolidated financial performance for the nine months ended December 31, 2023. Using financial and operating results as its basis, the MD&A describes the Corporation’s past performance and future prospects, enabling readers to view SaskEnergy from the perspective of management. The MD&A is presented as at February 28, 2024 and should be read in conjunction with the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS). For additional information related to the Corporation, refer to SaskEnergy’s 2022-23 Annual Report. The MD&A contains certain forward-looking statements that are subject to inherent uncertainties and risks. Many of these risks are described in the Risk Management and Disclosure section of SaskEnergy’s 2022-23 Annual Report. All forward-looking statements reflect the Corporation’s best estimates and assumptions based on information available at the time the statements were made. However, actual results and events may vary significantly from those included in, contemplated by, or implied by such statements. The volume of natural gas delivered to customers is sensitive to variations in weather, particularly through the prime heating season of November to March. Additionally, changes in market value adjustments may cause significant fluctuations in net income due to the volatility of natural gas prices. Therefore, the condensed consolidated financial results for the first nine months of 2023-24 should not be taken as indicative of the performance to be expected for the full year. The Corporation’s financial results are subject to variation, especially given the volatility of natural gas prices. To compare financial performance from period to period, the Corporation uses the following measures: income before unrealized market value adjustments; realized margin on commodity sales; and realized margin on asset optimization sales. Each measure removes the impact of fair value adjustments on financial and derivative instruments and the revaluation of natural gas in storage to the lower of cost and net realizable value. Unrealized market value adjustments vary considerably with market prices of natural gas, drive significant changes in the Corporation’s consolidated net income and may obscure other business factors that are also important to understanding the Corporation’s financial results. The measures referred to above are non-IFRS measures, in that there is no standardized definition and may not be comparable to similar measures presented by other entities. The discussion of the Corporation’s results in the MD&A, set out on the following pages, is a comparison of the results for the nine months ended December 31, 2023, to the results for the nine months ended December 31, 2022, unless otherwise noted. OPERATING ENVIRONMENT SaskEnergy monitors a number of crucial factors that could influence financial performance. Weather and Global Variables After July 2023 landed as the hottest month on record (globally), 2023 looks to be the hottest year. This distinction was held by 2016 with a strong El Nino year, and another El Nino (combined with more CO 2 in the atmosphere) has pushed 2023 to the top of the list. El Nino is the result of warm equatorial waters of the Pacific Ocean acting like a global heat pump. Current forecasts have these conditions moderating and reaching a neutral state between March and May 2024. Locally, conditions are aligning with global averages. On a population weighted basis, December 2023 was the warmest December on record for both Alberta and Saskatchewan. On the supply side, American and Canadian producers continue to set new records for production levels. For the time being, this gas is keeping storage levels near all-time seasonal highs, and in the longer-term incremental LNG export capacity is expected to take up the slack. Current projects under consideration would have North America’s export capacity double by 2029 – up to 28 Bcf per day. This expansion is primarily driven by incremental natural gas production for the Permian basin wells of east Texas (increasing gas-to-oil ratios), and to a lesser extent by the LNG Canada facility expected on-line in late 2024 (2 Bcf per day). Strong North American supply and drought-induced slowdowns at the Panama Canal caused a surplus of LNG deliveries to Europe allowing the continent to enter the winter with full storage despite dramatically reduced Russian imports. This reduction in risk drove down the Dutch index price by 65 per cent over the calendar year; current prices are 90 per cent lower than the peaks seen in mid-2022. US prices showed similar action with a year-on-year fall of 40 per cent.
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