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 three months ended June 30, 2024. 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 August 28, 2024 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 2023-24 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 2023-24 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 three months of 2024-25 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 three months ended June 30, 2024, to the results for the three months ended June 30, 2023, unless otherwise noted. Operating Environment SaskEnergy monitors a number of important external factors that could influence financial performance. Continued Global Integration Global Liquified Natural Gas (LNG) markets started the fiscal year relatively strong with the major Asian and European index both trading up around 25 per cent for the quarter – still a moderate move when compared to the hyper-volatility seen in 2022. Factors driving this move have been heat in Asia, facility maintenance in Norway, and the United States benchmark price increasing by 40 per cent, as much of the United States experienced a heat wave that put significant pressure on electricity generation. Should temperatures normalize through the summer, the strong prices would be at risk due to robust storage levels. One notable exception to price strength is in Texas’ Permian Basin, where high production, low local demand, pipeline maintenance, and LNG maintenance have resulted in low and even negative prices for much of the quarter. Global natural gas markets continue to see increasing correlation as the global LNG market share grows with respect to global imports and exports. North American liquefaction capacity did not grow through 2023, but the brief pause is ending as Canada’s LNG facility in Kitimat, British Columbia, is expected to begin operations in 2024-25. Further, in June the Haisla Nation and Pembina announced a positive final investment decision for the Cedar LNG facility off the coast of Kitimat. This facility is expected to add around 17 per cent to Canada’s liquefaction capability when it comes online in 2028. Despite the expectation for demand from the LNG sector, western Canadian gas prices remained low, as high production and high storage levels were met with modest demand and seasonal pipeline maintenance.
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