INDUSTRY OVERVIEW
SaskEnergy monitors a number of important factors that could influence financial performance.
Oil Market Volatility
The prior fiscal year ended with the entire global energy complex in a state of uncertainty. Pandemic-related demand destruction combined with a geo-political supply glut had resulted in crude oil prices falling by over 60 per cent. The first two months of this fiscal year continued the trend of uncertainty and volatility. The end of April saw WTI prices trade below negative $30 per barrel as traders were faced with the prospect of continued low demand and a lack of storage to balance the market. Prices quickly recovered to around $40 per barrel and have remained range-bound for the last four months. The relative stability is notable as prices have been in a $9 range the last four months after spending the previous six months in a $90 range. Oil production has grown in importance for gas utilities, and SaskEnergy is no exception. Low oil prices can reduce demand for gas as customers engaged in enhanced oil recovery are faced with tighter margins. Reduced drilling and production of oil can result in lower production of associated natural gas. Utilization of gas infrastructure by associated gas producers can impact pipeline capacity and tolls in Saskatchewan.
Natural Gas Prices
Natural gas price volatility has been nearly the exact opposite of crude oil. With global storage levels and US production at all-time highs, the fall in natural gas prices preceded the broader pandemic slow down. From April until July, natural gas prices in North America, and Western Canada specifically, stayed within a relatively tight price band. This is in contrast to last summer when Alberta prices (AECO) were extremely volatile, often trading at or below $0 per GJ. Upstream system improvements have reduced some transportation bottlenecks leaving AECO prices more closely matched with other downstream prices. The result of this relative calm period has been reduced interest in exporting gas and increased injections into storage. As Alberta storage levels approached record highs, with a month of injection season remaining, uncertainty and volatility returned to the market. The localized volatility of AECO was compounded by continental volatility due to shifting weather forecasts, an active hurricane season, and shifting demand for liquefied natural gas (LNG) feedstock. Looking forward, uncertainty remains a theme for AECO prices. The NGTL 2021 Expansion Project, recommended by the Canada Energy Regulator in February, awaits final approval of the Federal Minister of Natural Resources. This project would further remove bottlenecks from the Alberta system and provide SaskEnergy with incremental capacity. In addition, the Temporary Service Protocol (TSP) that is currently in place is planned to expire at the end of October 2020, however a group of gas producers has requested the protocol extend until the NGTL 2021 Expansion Project is approved and placed into service.
2020-21 Second Quarter Report
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