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 six months ended September 30, 2022. 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 November 16, 2022 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 2021-22 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 2021-22 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 six months of 2022-23 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 six months ended September 30, 2022, to the results for the six months ended September 30, 2021, unless otherwise noted.
OPERATING ENVIRONMENT SaskEnergy monitors a number of important factors that could influence financial performance. European Energy Crisis
Europe continues to face an energy shortfall and volatile natural gas prices. Prices for European benchmarks more than doubled through July and August and fortunately gave back nearly all those gains by the end of the quarter. Building storage levels remains a key priority for the continent; at the end of the quarter, storage levels were nearly 90 per cent full – well above the 80 per cent target set for November 1, 2022. The end of the quarter saw explosions causing serious damage to both the Nord Stream pipelines and the associated methane release. These lines were not active, so this did not represent a short-term change to import dynamics, but the incident does draw attention to the security of other existing facilities in the region and the long-term viability of the Nord Stream system. Global LNG suppliers continue to fuel Europe, though demand in Asia remains and shipping capacity is a bottleneck. This finite LNG export capacity has continued to isolate North America from high global gas prices, though volatility remains. The primary North American price index also doubled through the quarter on high demand and fell back to mid- June levels by the end of the quarter. Despite slower injections through a hot July, American storage continues to fill on pace, leaving the year-on-year deficit at its tightest since the end of withdrawal season.
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