Management’s Discussion and Analysis
The realized margin on commodity sales excludes the impact of unrealized fair value adjustments on derivative instruments, as these adjustments can fluctuate significantly from one period to the next and do not necessarily represent the amount that will be paid upon settlement of the related natural gas contract. The Corporation’s realized margin on commodity sales for the three months ended June 30, 2022, was $1 million higher than 2021, as SaskEnergy received approval to increase its commodity rate to $3.20 per GJ effective November 1, 2021. Higher sales volumes resulting from weather being eight per cent colder than prior year also contributed to favourable results in 2022. The rate adjustment and higher sales volumes in 2022 were almost fully offset by AECO daily index prices trending upwards, resulting in higher cost of sales, as the index averaged $6.86 per GJ through the three months ended June 30, 2022, a large increase from $2.93 per GJ for the same period ended June 30, 2021. The GCVA balance increased to $27 million owing from customers at June 30, 2022 compared to $15 million owing from customers at March 31, 2022, a result of the AECO daily index averaging $6.86 per GJ through the three months ended June 30, 2022 compared to an average of $3.81 per GJ throughout the 12 months ended March 31, 2022. Commodity Fair Value Adjustments Natural gas market prices trended higher through most of the first quarter of 2022-23 and then declined below March 31, 2022 prices leading up to June 30, 2022. With near-term forward market prices declining at June 30, 2022 the unrealized fair value adjustment on the Corporation’s commodity derivative instruments decreased the commodity margin by $1 million. The favourable price differential between average contract prices and average market prices on future commodity derivative instruments decreased from $1.50 per GJ at March 31, 2022 to $1.39 per GJ at June 30, 2022, resulting in the $87 million favourable fair value position at March 31, 2022 decreasing to $86 million favourable at June 30, 2022. SaskEnergy segregates a portion of its natural gas purchase contracts for gas that will ultimately be sold to commodity customers. Under IFRS, such contracts are not required to be reported at market value. Asset Optimization Margin SaskEnergy uses its access to natural gas markets to execute purchases and sales of natural gas to generate margins. By utilizing off-peak transportation and storage capacity, SaskEnergy is able to find opportunities in the market to take advantage of pricing differentials between transportation hubs, delivery points and time periods. In most cases, the Corporation executes purchase and sales contracts at the same time, thereby mitigating much of the price risk that would normally be associated with such transactions. SaskEnergy also uses purchases and sales of natural gas to mitigate transportation constraints, which are executed at a cost. The asset optimization margin, as reported in the condensed consolidated financial statements, was as follows:
Three months ended June 30,
(millions)
2022
2021 Change
$
114 $
Asset optimization sales
30 $
84 79
108
Asset optimization cost of sales
29
6
Realized margin on asset optimization sales Unrealized fair value adjustments Revaluation of natural gas in storage
1
5 1
-
(1)
(1)
- -
(1)
$
5
Margin on asset optimization sales
$
$
5
The realized margin on asset optimization sales for the three months ended June 30, 2022, which removes fair value adjustments on derivative instruments and the revaluation of natural gas in storage, was $5 million higher than 2021. As AECO daily index prices trended higher and experienced additional volatility through the three months ended June 30, 2022, the Corporation took advantage of additional asset optimization opportunities and executed 9 PJ more than prior year and at margins of $0.31 per GJ compared to $0.12 per GJ in 2021.
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