The Intercontinental Exchange (ICE) has warned the European Union that its proposal to cap gas prices would raise the likelihood of price increases to the limit, Reuters reported, citing a related document.

The European Commission last month proposed a cap that would take effect if the first-month TTF price exceeds €275 per megawatt hour for two weeks and is €58 higher than the 10-day benchmark price for liquefied natural gas.

In a memo sent to the Commission, the Intercontinental Exchange (ICE), where TTF is traded, said the proposal could actually lead to higher prices, even though it is designed to protect EU economies from gas price hikes.

The memo, seen by Reuters, says liquidity providers are likely to buy short positions and stop selling TTF gas futures if prices rise even relatively close to the cap level to hedge against the risk of holding those positions if the cap is activated.  The resulting shortage of sellers in the TTF market will cause prices to rise.

The European Commission declined to comment on the memo.

European Commissioner for Energy Kadri Simson held a video call with representatives of energy exchanges to discuss the restriction after the Association of European Energy Exchanges warned last week of possible negative consequences.

The safeguards include that the Commission can immediately suspend the price cap if it causes negative consequences, including risks to financial stability or gas flows within Europe.

The TTF is the most liquid gas futures market in Europe, attracting a wide range of gas suppliers, wholesalers and speculators.

EU countries are negotiating a planned restriction, but remain divided on the issue. Some EU diplomats are skeptical that a deal will be reached at a Dec. 13 meeting of energy ministers.

ICE warned that the EU proposal could also lead to an 80 percent increase in the security deposits that gas market participants must pay to guarantee their deals in the event of a default.