Natural gas market prices have been low through the first half of 2015 and are expected to remain low for the remainder of the year. These low prices together with small differentials between current and forward prices have limited gas marketing opportunities compared to prior years. The decline in natural gas prices will continue to generate unfavourable unrealized market value adjustments on natural gas contracts and natural gas in storage, however in the first six months the settlement of existing contracts has resulted in favourable market value adjustments. Natural gas liquid prices have also declined from the low levels experienced in 2014, resulting in an impairment of gas processing assets being recognized in 2015. The second quarter of 2015 reported a $5 million loss before unrealized market value adjustments compared to a $6 million loss for the second quarter of 2014. A higher realized margin on commodity sales and higher transportation revenue, both results of rate increases, were partially offset by a decline in delivery revenue, a result of 2015 weather being closer to normal.
Natural Gas Prices
Natural gas prices are set in an open market and are influenced by a number of variables including production, demand, natural gas storage levels 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 generate incremental electricity for air conditioning in the summer, weather has the greatest impact on natural gas prices in the near term. Due to the high degree of uncertainty associated with weather, natural gas prices can be very volatile. Prices remained low in the first half of 2015 as a result of continued record levels of production and unseasonable warm winter weather in the west. This has contributed to uncharacteristically stable natural gas prices and natural gas storage has filled at above average rates throughout the injection season and storage levels are currently 1% above the five year average, compared to 30% below at this time last year.
The AECO monthly index, the benchmark price for natural gas in western Canada, averaged $2.66/GJ in the first half of 2015, down from an average of $4.47/GJ from the same time period in 2014.
The following chart presents AECO natural gas prices. Most natural gas in Saskatchewan is priced at a differential to the AECO price and is typically between $0.05 per gigajoule (GJ) and $0.20 per GJ higher than AECO.
$12.00
$10.00
Forward Price at June 30, 2015
AECO Monthly Price
$8.00
$6.00
$4.00
$2.00
$0.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Natural Gas Sales and Purchases
Included within natural gas sales and purchases are rate-regulated commodity sales to distribution customers and non- regulated gas marketing activities. Although presented together within the consolidated financial statements in accordance with IFRS, the Corporation manages these activities as distinct and separate businesses and, as such, the MD&A addresses these natural gas sales and purchases separately.
6
2015 SECOND QUARTER REPORT
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