MANAGEMENT’S DISCUSSION AND ANALYSIS
INDUSTRY OVERVIEW SaskEnergy monitors a number of important factors that could influence financial performance. Natural Gas Prices Natural gas prices are set in an open market and influenced by a number of factors including production, demand, natural gas storage levels, pipeline takeaway capacity and economic conditions. Given the high demand for natural gas to heat homes and businesses during the cold winter months and the demand for natural gas to produce electricity for air conditioning, weather typically has a significant impact on prices in the near term. Due to the high degree of uncertainty associated with weather, natural gas prices can be very volatile, which both the Saskatchewan and Alberta markets experienced this past year. Natural gas market fundamentals remained in a strong supply position relative to demand over the last number of years due to the advancements in shale gas production. The AECO average natural gas settlement price in Western Canada was $1.91 per gigajoule (GJ) throughout the 12 months ended March 31, 2018 compared to $2.27 for the year prior. Throughout the fiscal year, pipeline maintenance in Alberta limited transportation available from AECO (Alberta) to the Saskatchewan border. In addition, a transformational change occurred in the fall of 2017, when the National Energy Board approved a long-term fixed price contract from Empress (Alberta/Saskatchewan border) to Dawn (Ontario) on TCPL’s mainline. This event resulted in any excess transportation capacity within Alberta to the Saskatchewan border being fully contracted. An Alberta infrastructure shortage is evident by the decreased average daily settlement prices at AECO. The increased supply in conjunction with limited pipeline takeaway capacity resulted in select days of negative prices at AECO during the year. Until more takeaway capacity is available, large volumes of natural gas are likely to be trapped in Alberta, prolonging decreased AECO prices.
Environmental In 2017-18, SaskEnergy continued to focus on environmental sustainability throughout its operations, measuring results through the intensity of its greenhouse gas (GHG) emissions relative to the amount of compression used to transport natural gas. This measure is calculated using a cumulative average at the end of each quarter. As the compressor fleet is modernized, increased operating efficiency is being reflected through decreased emissions intensity. The Corporation exceeded its compressor emissions reduction target for 2017-18 by 21 per cent. The federal government plans to reduce oil and gas industry methane emissions that contribute to climate change were announced in March 2016, targeting a 40-45 per cent reduction in methane levels by 2025, using 2012 levels as a baseline. Environment and Climate Change Canada (ECCC) published the first draft regulation in May 2017. ECCC plans to publish the final regulation in spring/summer 2018. Regulatory requirements are expected to be focused on reducing fugitive emissions at compressor stations, and include more frequent compressor station leak surveys, venting restrictions, and equipment modifications to reduce and/or capture leaks. The federal government is also consulting with industry on the Carbon Pricing Backstop Regulations and Clean Fuel Standard Regulations. SaskEnergy has been involved in regulatory development through engagement with industry associations (Canadian Energy Pipeline Association and the Canadian Gas Association) and ECCC. ECCC published the Multi-Sector Air Pollutant Regulations for stationary combustion engines on June 28, 2016, which sets mandatory limits for nitrogen oxide emissions that impact air quality. The Corporation is working with consultants and other internal departments to ensure compliance with these new regulations. Community Relationship The Total Contracts as a Percentage of Aboriginal Labour Content metric is above target and higher than 2016-17 due to significant payments made to Aboriginal businesses. The commitment of Aboriginal content on the awards of large construction projects also contributed to these results.
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