Management Discussion and Analysis
Unrealized Margin on Commodity Sales The Corporation’s $1 million realized margin on commodity sales for 2021 equaled 2020. During the first quarter of 2021-22, average revenue was $2.51 per GJ and average cost of gas sold was $2.43 per GJ, resulting in a margin of $0.08 per GJ. The GCVA balance increased to $11 million owing from customers at June 30, 2021 compared to $6 million owing from customers at March 31, 2021, a result of the AECO daily index increasing to $2.93 per GJ compared to $1.89 per GJ in 2020. Commodity Fair Value Adjustments The fair value adjustment through the first quarter on commodity derivative instruments increased the margin on commodity sales by $16 million as the $12 million favourable fair value position at March 31, 2021 increased to $28 million favourable at June 30, 2021. The favourable price differential between contract prices and market prices on future commodity purchase contracts increased during the first quarter from $0.33 per GJ to $0.53 per GJ. 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 June 30
(millions)
2021
2020
Change
$
30 29
Asset optimization sales
$
$
(7)
37 41
12
Asset optimization purchases
1
Realized margin on asset optimization sales Unrealized fair value adjustments Revaluation of natural gas in storage
(4)
5
(1)
(4) (4) (3)
3 4 3
- -
$
$
$
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 $5 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. These incremental transportation contracts in 2020 had an unfavourable $6 million effect on the asset optimization margin. This was partially offset by the impact of the AECO daily index increasing $1.04 per GJ in 2021 compared to 2020, resulting in a higher average asset optimization purchase price and a reduced margin. Asset Optimization Fair Value Adjustments The Corporation enters into various natural gas contracts in its asset optimization strategies, which are subject to volatility of natural gas market prices until the natural gas contracts are realized. Unrealized fair value adjustments on asset optimization derivative instruments decreased the margin on asset optimization sales by $1 million. Stronger natural gas market prices at June 30, 2021 increased the favourable price differential between contract prices and market prices on future asset optimization purchase contracts by $0.41 per GJ, resulting in an $8 million favourable fair value adjustment. This was fully offset by the $9 million unfavourable fair value adjustment resulting from the unfavourable price differential on outstanding asset optimization sale contracts increasing from $0.18 per GJ to $0.62 per GJ.
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