SaskEnergy Second Quarter Report - September 30, 2020

The realized margin on asset optimization sales at September 30, 2020, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was a $4 million loss, $11 million lower than the $7 million favourable margin for the same period in 2019. At the beginning of October 2019, TC Energy enacted a temporary policy, which reduced natural gas price volatility while contributing to stronger natural gas pricing. Reducing natural gas price volatility limited SaskEnergy’s asset optimization opportunities, as asset optimization sales decreased 9 PJs in 2020 compared to 2019, resulting in a $3 million unfavourable volume variance. Stronger natural gas market pricing, evident by the AECO daily index averaging $2.00 per GJ throughout the six months ended September 30, 2020 compared to $0.99 per GJ the year prior, resulted in the average cost of asset optimization purchases increasing $0.70 per GJ in 2020 compared to 2019. This reduced the realized margin on asset optimization sales by $4 million through the six months ended September 30, 2020 compared to the same period in 2019-20. To mitigate transportation capacity within Alberta and to meet increasing customer obligations in Saskatchewan, the Corporation secured 5 PJ of incremental asset optimization transportation contracts on TC Energy’s NGTL Alberta system at an additional cost of $3 million for the six months ended September 30, 2020 compared to the same period in 2019. This resulted in an unfavourable effect on the 2020 asset optimization purchase costs and the realized margin on asset optimization sales compared to 2019.

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. At September 30, 2020, the fair value adjustment on asset optimization derivative instruments increased the margin on asset optimization sales by $5 million compared to a decrease of $27 million for the same period in 2019-20. Stronger natural gas market prices resulted in the price differential between contract prices and market prices on future asset optimization purchase contracts improving to $0.11 per GJ favourable at September 2020 compared to an unfavourable price differential of $0.20 per GJ at March 31, 2020. This $0.31 per GJ favourable change in the price differential on asset optimization purchase contracts in 2020-21 resulted in a $10 million favourable fair value adjustment, which was partially offset by the $5 million unfavourable variance related to a $0.27 per GJ increase in the unfavourable price differentials on outstanding asset optimization sale contracts.

Revaluation of Natural Gas in Storage

At each reporting period, the Corporation measures the net realizable value of natural gas in storage held for asset optimization transactions based on forward market prices and anticipated delivery dates. The carrying amount of natural gas in storage is adjusted to reflect the lower of weighted average cost and net realizable value. Near term forward natural gas market prices increased since March 2020, consequently, the net realizable value of asset optimization natural gas in storage was $1 million below cost at September 30, 2020, which is a $6 million favourable adjustment to net income from the $7 million unfavourable revaluation adjustment recorded as at March 31, 2020.

2020-21 Second Quarter Report

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