Management’s Discussion and Analysis
OPERATING ENVIRONMENT SaskEnergy monitors a number of important factors that could influence financial performance. Energy Transition Uncertainty
Europe continues to face an energy shortfall and increasing natural gas prices. To conserve and build natural gas storage levels, Germany and other European nations are turning back to coal to temporarily meet energy demands. These demands will also continue to be met, in part, with shipments of liquified natural gas (LNG). Canada is still expected to finally enter the LNG export market when the LNG Canada export facility near Kitimat, British Columbia opens – likely in 2025. A smaller project near Squamish has made incremental progress with a final investment decision now made; in-service is expected for 2027. Finite LNG export capacity has kept North America somewhat isolated from high global gas prices, and that bottleneck was compounded when a fire broke out at a Texas export terminal. The facility had been exporting around 2.5 per cent of US production. With the date of returned service yet unknown, this excess supply is now being diverted into US storage rather than shipping to Europe. Hot weather and LNG demand had resulted in NYMEX prices climbing over 60 per cent in the first two months of the quarter but falling oil prices and increased storage injections resulted in a return to prices experienced at the start of the quarter. Recent MD&A reports have often focused on the volatility of the gas market compared to the relative calm of prices since 2009; the last two quarters have now seen a return to price volatility not seen since the financial crisis in 2008. Despite continued delays to projects to debottleneck gas exports from Western Canada, prices have remained reasonably connected with the remainder of North America resulting in strong prices through May and a rapid decline through June. Through periods of maintenance, prices have briefly disconnected to the downside with more maintenance expected through the early parts of next quarter. This low-priced gas is used to fill storage for winter in Saskatchewan, though excess imports are not possible due to the limited transport capacity. Transport capacity for existing contracts is expected to be fully debottlenecked when upstream projects scheduled for April 2022 are fully put in-service by early 2023. SaskEnergy has no contractual exposure to these delays but may still be impacted by the volatile market reaction to them. Saskatchewan Natural Gas With the provincial economy continuing to recover and an improved outlook for the value-added agricultural sector, potash mining, enhanced oil recovery, and power generation, there is greater potential for increased demand over the next few years. Rising energy and carbon prices do present a risk for energy-intensive industries. Local supply continues to trend downward, increasing dependence on associated gas with oil production. There were no new natural gas wells drilled in the last fiscal year, leaving local supply highly dependent on the volatile global oil market. With increasing oil prices, rig activity in the province has improved, but not enough to expect meaningful gas supply increases. Natural Gas Prices The AECO daily index averaged $6.86 per GJ through the three months ended June 30, 2022, representing a large increase from $2.93 per GJ for the same period ended June 30, 2021; unsurprising, given the large increase seen to the entire global energy complex. Global prices have kept upward pressure on Western Canadian gas as exported gas is not available to fill the storage deficit in Alberta from last year’s cold winter. Some relief from high prices was seen as downstream prices fell and local maintenance again partially isolated the Alberta market. Traditionally, most natural gas in Saskatchewan (TEP) is priced at a differential to the AECO price. This AECO to TEP differential for the quarter averaged a $0.49 per GJ premium compared to $0.03 per GJ the year prior – the difference here can, again, be attributed to three weeks of maintenance that temporarily depressed Alberta prices. The differential may experience more upward pressure depending on maintenance activities through the rest of summer.
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