ICE warns EU against planned gas price cap

Belgium, (Brussels Morning Newspaper) The Intercontinental Exchange (ICE) warned the EU against the planned natural gas price cap, stressing that it could drive up prices.

In a memo sent to the European Commission, the US exchanges operator pointed out that introducing the price cap would likely drive prices towards the cap, according to a Reuters report on Tuesday.

In November, the EC proposed a gas price cap that would come into effect if the TTF benchmark remained above 275 euro per MWh for two weeks and at least 58 euros above liquefied natural gas (LNG) reference price for ten days.

ICE, which hosts TTF trading, reminded that the Commission proposed the cap to protect EU member states from rising gas prices and stressed that the move could backfire.

According to ICE, introducing the cap would push liquidity providers to stop selling gas futures and buy back short positions if prices approached the cap to make sure they were not holding positions when the cap comes into effect.

ICE stressed that the EU’s move would put liquidity providers in a position with “no certainty about what they are trading and what their risk is,” which would result in a shortage of sellers and drive up prices.

“Our customer outreach and internal risk assessment suggest that the mere presence of a cap significantly increases the probability of the cap being triggered,” the company warned.

Earlier warning

Last week, the Association of European Energy Exchanges (Europex) warned about possible problems with the EC’s plan, which prompted European Commissioner for Energy Kadri Simson to discuss the issues with energy exchanges on Tuesday.

“The EU Commission hears the concerns and arguments expressed by the representatives of the European Gas Exchanges,” Simson stated and added “we are aware of them… this is why the proposal includes strong safeguards.”

According to EC’s plan, the Commission could suspend the cap if it caused unintended consequences.

ICE added that the proposal could drive up security deposits as much as 80%, stressing that “an increase of this size could destabilise the market.”EU member states are still discussing the proposed gas price cap, but remain divided on the issue.