Management Discussion and Analysis
Realized Margin on Commodity Sales The Corporation’s realized margin on commodity sales for the nine months ending December 31, 2021 was $7 million higher than 2020 as SaskEnergy received approval to increase its commodity rate to $3.20 per GJ effective November 1, 2021. The last commodity rate adjustment was implemented April 1, 2019 when the commodity rate was decreased to reflect the lower price of natural gas at that point in time. Natural gas market prices have essentially doubled since SaskEnergy last adjusted its commodity rate, a result of recent extreme weather events across North America, higher liquefied natural gas exports and higher natural gas demand. The Corporation was able to benefit from the higher natural gas market prices by increasing returns on physical swap and other gas sales in 2021 compared to 2020. The realized margin per GJ for commodity sales increased to $0.33 per GJ in 2021 compared to $0.15 per GJ in 2020. This was partially offset by commodity sales revenue from residential customers being lower through 2021, as sales volumes are 1 PJ lower than the same period in 2020, a result of weather being 1 per cent warmer than normal in 2021 compared to 5 percent colder than normal in 2020. The GCVA balance increased to $19 million owing from customers at December 31, 2021 compared to $6 million owing from customers at March 31, 2021, a result of the AECO daily index averaging $3.59 per GJ through the nine months ending December 31, 2021 compared to an average of $2.37 per GJ throughout the 12 months ending March 31, 2021. Commodity Unrealized Fair Value Adjustments As natural gas market prices continue to trend higher, the unrealized fair value adjustment on the Corporations commodity derivative instruments increased the commodity margin by $28 million. The favourable price differential between average contract prices and average market prices on future commodity purchase contracts increased from $0.33 per GJ at March 31, 2021 to $0.67 per GJ at December 31, 2021, resulting in the $12 million favourable fair value position at March 31, 2021 increasing to $40 million favourable at December 31, 2021. SaskEnergy segregates a portion of its natural gas purchase contracts for gas that will ultimately be sold to commodity customers. Under IFRS, such contracts are not required to be reported at market value. Asset Optimization 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. Asset Optimization margin
Three months ended December 31,
Nine months ended
December 31,
(millions)
2021
2020 Change 2021
2020 Change
$
59 57
141 134
$
Asset optimization sales
$
24 24
$
35 33
$
94 98
$
47 36 11
Asset optimization cost of sales
2 4
7 2
Realized margin on asset optimization sales Unrealized fair value adjustments Revaluation of natural gas in storage
-
2 1
(4)
3
8 6
(6) (6) (1)
-
-
-
-
$
6
$
9
Margin on asset optimization sales
$
3
$
3
10
$
$
Realized Margin on Asset Optimization Sales The realized margin on asset optimization sales, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $11 million higher than 2020. Transportation capacity within Alberta was secured through asset optimization transportation contracts in 2020 to meet customer obligations while no capacity was contracted through asset optimization opportunities in 2021. The incremental transportation contracts in 2020 had an unfavourable effect on the unrealized margin on asset optimization sales.
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