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Gas Price Cap Could Cause Irreversible Harm To Energy Markets




  • The European Commission issued a statement declaring what it called a “safety price ceiling” for gas prices set at 275 euros per MWh.
  • The threat of a gas price cap on front-month gas contracts would strain the market and effectively make it less transparent.
  • Traders are especially concerned about the idea to tie the price of LNG to the price of benchmark EU gas futures.


Earlier this week, the European Commission issued a statement declaring what it called a “safety price ceiling” for gas prices set at 275 euros, or $283 dollars, per megawatt-hour.

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Hailed as the long-awaited gas price cap that EU members have been discussing for weeks now, the ceiling’s aim, according to the Commission, will be used as a “temporary and well-targeted instrument to automatically intervene on the gas markets in case of extreme gas price hikes.”

While national governments may be happy with this new instrument, market players are the opposite of happy. In fact, traders have warned that using the instrument could cause irreversible harm to energy markets in Europe.

“Even a short intervention would have severe, unintended and irreversible consequences in harming market confidence that the value of gas is known and transparent,” said the European Federation of Energy Traders this week, following the news broken by the European Commission, as quoted by the Financial Times. What traders—and exchanges—argue is that the threat of a gas price cap on front-month gas contracts would strain the market and effectively make it less transparent. Even worse, according to them, is the EC’s idea to basically tie benchmark European gas futures prices to the price of liquefied natural gas on the spot market.


The tie to LNG prices is one of two conditions that must be met for the “safety price ceiling” to be triggered automatically. As stated by the EC, these are, first, when “the front-month TTF derivate settlement price exceeds €275 for two weeks” and, second, when “TTF prices are €58 higher than the LNG reference price for 10 consecutive trading days within the two weeks.”

As soon as both of these things happen, regulators will swing into action, and after a day of notifications to all relevant authorities, the ceiling will enter into effect, and front-month orders for gas naming prices that are above 275 euros will not be accepted.

According to the Commission, the fact that the price cap is limited to front-month contracts ensures the stability of the financial system and futures markets by leaving traders free to trade gas over the counter and on the spot market.

According to traders and exchange operators, this is not the case. Per the FT report on the topic, the industry is worried about unexpected and excessively high margin calls on the over-the-counter market, as well as the ability of exchanges to tackle defaults.

The LNG tie is of particular concern because, according to traders, LNG markets are a lot more illiquid and volatile than the TTF market, which is based on actual transactions.

The trading world is so concerned about the gas price cap that the European Federation of Energy Traders warned the Commission this week that the cap might force exchanges to suspend trading in case they could “not meet obligations on running fair and orderly markets.”

Meanwhile, the European Central Bank has also warned against moving trades from exchanges to over-the-counter market, which, featuring direct transactions between parties, is a lot more opaque and a lot less regulated than the exchange.

The traders are not alone in their concerns, which also include a worry that the proposed cap mechanism has not been tested for faults. The Commission just said it would become effective next January.

“It is unrealistic to assume this [ensuring the cap won’t put markets in jeopardy] can be achieved within a short timeframe and certainly not before the end of this winter,” the head of the European association of energy exchanges, Christian Baer, said.

Some European diplomats appear to share these concerns, according to the FT. One unnamed member of the diplomatic body said this week that “Safeguards checks are only applied ex-post [so] how can compliance with the safeguards be ensured when the measure is in place? It is similar to installing airbags after you ran your car into an accident.”

Per the Commission’s proposal, there are two ways to ensure the cap does no harm to markets: one, by deactivating it or by preventing its activation “in case relevant authorities, including the ECB, warn of such risks materialising.”

The language of the statement about the price cap is quite general, as the language of all such statements tends to be. There is little specificity or, indeed, examples of the risks mentioned above that would trigger the deactivation of the cap—facts that no doubt intensify traders’ worries.

There is also another worry that may potentially be a bigger one, and it has nothing to do with trading and financial markets. Several EU members are concerned that the price cap will encourage greater gas demand at a time when demand needs to be reduced.

The Commission has a response to that: triggering the mandatory energy savings mechanism agreed upon earlier this year and launched in its voluntary version a couple of months ago. Whether this would be enough and, more importantly, whether it would not have some severe unintended consequences remains an open question for now.

By Irina Slav for

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Consumer debt tops $2.36 trillion in third quarter, up 7.3 per cent from last year



Equifax Canada says an increase in borrowers helped push total consumer debt to $2.36 trillion in the third quarter for a 7.3 per cent rise from last year, even as mortgage volumes decline.

It says average non-mortgage debt rose to $21,183 for the highest level since the second quarter of 2020, with early signs of strain starting to show in auto loans and credit cards.

Overall non-mortgage debt came in at $599.9 billion for a 5.3 per cent climb from last year, and up 1.9 per cent from the third quarter of 2019, as the number of borrowers rose by 3.1 per cent.

Rebecca Oakes, Equifax Canada’s head of advanced analytics, says the rising debt stems from a combination of growth from immigration, pent-up spending, as well as increased borrowing as consumers feel the strain of higher living costs.

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Credit card spending in the quarter was up 17.3 per cent from last year to an all-time high for the time period.

Average spending put on credit cards was almost $2,447, a 21.8 per cent jump from the third quarter of 2019.

There’s been an increase in credit card spending and new cards issued across all consumer segments, including the sub-prime segments, said Oakes in a statement.

She said there are some signs that borrowers are starting to have trouble covering the bills, with average payment rates for those who carry a balance down from a year ago, she said.

“Consumers have been making strong payments, but we are starting to see a shift in payment behaviour especially for credit card revolvers — those who carry a balance on their card and don’t pay it off in full each month.”

Delinquencies on auto loans have also started to trend up, especially those opened since late 2021, she said.

The overall rate of more than 90 day delinquencies for non-mortgage debt was 0.93 per cent, up from 0.87 last year, though insolvencies are still well below pre-pandemic levels.

New mortgage volume dropped 22.7 per cent in the quarter compared with last year and by 14.9 per cent compared with the third quarter of 2019. First-time home buyers are paying over $500 more for almost the same loan amounts as first-time buyers last year.

Overall insolvency rates are up from a year ago but from a relatively low starting point, and there are some areas of concern including a rise in consumer proposals by seniors, said Oakes.

“The true impact of interest rate hikes could be visible by the end of 2023.”

 This report by The Canadian Press was first published Dec. 6, 2022.

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Trudeau, Ford mark opening of Canada’s first full-scale electric vehicle plant



The Canadian Press

Published Monday, December 5, 2022 5:06AM EST

Last Updated Monday, December 5, 2022 1:17PM EST

Prime Minister Justin Trudeau and Ontario Premier Doug Ford are celebrating the opening today of Canada’s first full-scale electric vehicle manufacturing plant.

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Trudeau says electric delivery vans have started rolling off the line today at the General Motors CAMI production plant in Ingersoll, Ont., which has been retooled to build the company’s BrightDrop all-electric vehicle brand.

The prime minister was joined by Ford and the province’s Economic Development Minister Vic Fedeli to mark the milestone.

The provincial and federal governments each invested $259 million toward GM’s $2-billion plan to transform its Ingersoll plant and overhaul its Oshawa, Ont., plant to make it EV-ready.

The federal government says the Ingersoll plant is expected to manufacture 50,000 electric vehicles by 2025.

Canada intends to bar the sale of new internal-combustion engines in passenger vehicles by 2035.

This report by The Canadian Press was first published Dec. 5, 2022.

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Food prices in Canada: Families to pay $1,065 more in 2023




Canadians won’t escape food inflation any time soon.

Food prices in Canada will continue to escalate in the new year, with grocery costs forecast to rise up to seven per cent in 2023, new research predicts.

For a family of four, the total annual grocery bill is expected to be $16,288 — $1,065 more than it was this year, the 13th edition of Canada’s Food Price Report released Monday said.

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A single woman in her 40s — the average age in Canada — will pay about $3,740 for groceries next year while a single man the same age would pay $4,168, according to the report and Statistics Canada.

Food inflation is set to remain stubbornly high in the first half of 2023 before it starts to ease, said Sylvain Charlebois, lead author of the report and Dalhousie University professor of food distribution and policy.

“When you look at the current food inflation cycle we’re in right now, we’re probably in the seventh-inning stretch,” he said in an interview. “The first part of 2023 will remain challenging … but we’re starting to see the end of this.”

Multiple factors could influence food prices next year, including climate change, geopolitical conflicts, rising energy costs and the lingering effects of COVID-19, the report said.

Currency fluctuations could also play a role in food prices. A weaker Canadian dollar could make importing goods like lettuce more expensive, for example.

Earlier this year the loonie was worth more than 80 cents US, but it then dropped to a low of 72.17 cents US in October amid a strengthening U.S. dollar. It has hovered near the 74 cent mark in recent weeks, ending Friday at 74.25 cents US.

“The produce section is going to be the wild card,” Charlebois said. “Currency is one of the key things that could throw things off early in the winter and that’s why produce is the highest category.”

Vegetables could see the biggest price spikes, with estimates pegging cost increases will rise as high as eight per cent, the report said.

In addition to currency risks, much of the produce sold in Canada comes from the United States, which has been struggling with extremely dry conditions.

“The western U.S., particularly California, has seen strong El Nino weather patterns and droughts and bacterial contaminations, and that’s impacted our fruit and vegetable suppliers and prices,” said Simon Somogyi, campus lead at the University of Guelph and professor at the Gordon S. Lang School of Business and Economics.

“The drought is making the production of lettuce more expensive,” he said. “It’s reducing the crop size but it’s also causing bacterial contamination, which is lessening the supply in the marketplace.”

Prices in other key food categories like meat, dairy and bakery are predicted to soar up to seven per cent, the researchers found.

The Canadian Dairy Commission has approved a farm gate milk price increase of about 2.2 per cent, or just under two cents per litre, for Feb. 1, 2023.

“The increase for February is reasonable but it comes after the unprecedented increases in 2022, which are continuing to work their way through the supply chain,” Charlebois said of the two price hikes of nearly 11 per cent combined in 2022.

Meanwhile, seafood is expected to increase up to six per cent, while fruit could increase up to five per cent, the report said.

Restaurant costs are expected to increase four to six per cent, less than supermarket prices, the report said.

Rising prices will push food security and affordability even further out of reach of Canadians a year after food bank use reached a record high, the report said.

The increasing reliance on food banks is expected to continue, with 20 per cent of Canadians reporting they will likely turn to community organizations in 2023 for help feeding their families, a survey included in the report found.

Use of weekly flyers, coupons, bulk buying and food rescuing apps also ticked up this year and is expected to continue growing in 2023, the report said.

“We’re in the era now of the smart shopper,” said Somogyi, also the Arrell Chair in the Business of Food.

“For certain generations, it’s the first time that they’ve had to make a list, not impulse buy, read the weekly flyers, use coupons, buy in volume and freeze what they don’t use.”

Last year’s report predicted food prices would increase five to seven per cent in 2022 — the biggest jump ever predicted by the annual food price report.

Food costs actually far exceeded that forecast. Grocery prices were up 11 per cent in October compared with a year before while overall food costs were up 10.1 per cent, according to Statistics Canada.

“We were called alarmists,” Charlebois said of the prediction that food prices could rise seven per cent in 2022. Critics called the report an “exaggeration,” he said.

“You’re always one crisis away from throwing everything out the window,” Charlebois said. “We didn’t predict the war in Ukraine, and that really affected markets.”

This report by The Canadian Press was first published Dec. 5, 2022.

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