By Amal S

– Canada’s main stock index fell more than 1% on Thursday, with financial and healthcare stocks leading losses, amid a sharp sell-off in global markets after Russia launched an all-out invasion of Ukraine.

At 9:37 a.m. ET (14:37 GMT), the Toronto Stock Exchange’s S&P/TSX composite index was down 307.3 points, or 1.48%, at 20,436.87. The index was set to fall for a sixth straight session.

Russian forces invaded Ukraine in a massed assault by land, sea and air, the biggest attack by one state against another in Europe since World War Two.

Further losses were limited by heavyweight energy sector that climbed 1.0%, as oil prices jumped with Brent rising above $105 a barrel for the first time since 2014, on concerns about disruptions to global energy supply. [O/R]

“U.S. markets are under pressure, but Canada may be cushioned a little bit because it has a lot of gold producers, a lot of energy producers, and for what it’s worth, although completely overshadowed, the first round of earnings from Royal Bank were pretty upbeat,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.

The materials sector, which includes precious and base metals miners and fertilizer companies, added 0.5% as gold futures rose 2.5% to $1,957 an ounce. [GOL/]

Royal Bank of Canada kicked off Canadian lenders’ first-quarter results with a stronger-than-expected 6% rise in adjusted earnings, driven by wealth management and loan growth. Shares fell 2.1% in early trading.

Loblaw Cos Ltd fell 1.2%, despite the retailer beating market estimates for quarterly revenue, as demand for groceries and other essential items stayed strong.

On the economic front, domestic factory sales most likely rose 1.3% in January from December, Statistics Canada said in a flash estimate.

(Reporting by Amal S in Bengaluru; Editing by Vinay Dwivedi)

By Thomas Escritt and Sarah Marsh

SCHWERIN, Germany – In the north German state of Mecklenburg-Vorpommern, where former Chancellor Angela Merkel had her constituency, ties to Russia run deep – so deep, in fact, its leaders have defended a Kremlin project that the United States says helped cripple Ukraine.

At issue is a new gas pipeline project, which Germany halted on Tuesday in retaliation for Russia’s decision to recognise two breakaway regions in eastern Ukraine, shortly before it invaded and brought Europe to the brink of a major war.

Mecklenburg-Vorpommern is the landfall site for the line, Nord Stream 2, which bypasses the former Soviet Republic. The United States long argued the line would weaken Ukraine; Germany and Russia insisted the project was purely commercial. Nonetheless, in 2019 Washington set sanctions on some companies and individuals who were helping to build it, maintaining the line is a tool for Russia to support aggression against Ukraine.

Last January, the regional premier, Manuela Schwesig, took action to support the Russian project. At her initiative, the state parliament voted to set up a special foundation whose charter said it could acquire, manage, own, provide or let land, tools and machines to help the completion of the pipeline.

https://graphics.reuters.com/RUSSIA-UKRAINE/zgvomzwaxvd/graphic.jpg

“We believe that it is right to build the pipeline,” Schwesig told reporters in January 2021. Advocating for the pipeline in the state parliament last January, Schwesig said the U.S. sanctions were self-interested. “Nobody who is working on building the pipeline is doing anything wrong,” she said. “The ones doing something wrong are those who are trying to stop the pipeline.”

Nord Stream 2 would double the amount of gas Russia can pump directly to Germany, its biggest customer for gas, make Germany and Europe less vulnerable to supply interruptions caused by disputes between Russia and Ukraine, and bring economic benefits to Mecklenburg-Vorpommern, a relatively deprived region that used to be in the German Democratic Republic.

But this year as Russia stepped up pressure on Ukraine, questions mounted around the Foundation, called Klima-und Umweltschutz MV (Climate and Environment Protection Foundation). It would not reveal who was running its sanctions-busting operation beyond saying that the person was appointed by Nord Stream 2 AG, a company owned by Gazprom PAO, which is fully controlled by the Russian state.

Asked who that was, Swiss-based Nord Stream 2 did not respond. Gazprom did not respond to a request for comment.

The state auditor, the Court of Auditors, told Reuters on Feb. 9 it was concerned that Mecklenburg-Vorpommern had largely given up control over the Foundation’s assets. This meant there was no guarantee that the Foundation would always work in the public interest, said Sebastian Jahn, the court’s spokesman, in a telephone interview.

The Foundation said on Wednesday it would stop helping the pipeline project, but declined to say exactly what it had done to aid it so far. In an account of its first year on its website, it said that to complete the pipeline, “the U.S.’s illegal threats had to be countered with a wide range of measures, which for obvious reasons cannot be made the subject of public explanation.”

Public records show it purchased a ship which entered the Baltic last July and which a U.S. State Department report to Congress last November said had engaged in pipe-laying activities, on Nord Stream 2 or another sanctioned project.

“We did what is necessary, the pipeline is practically completed,” Foundation Chairman Erwin Sellering told German broadcaster NDR on Wednesday, adding that this involved helping small and medium-sized companies do their work. “We can say we fulfilled our mandate,” he added.

As Russia continues to pressure Ukraine, other questions are mounting about the links between the pipeline, Germany’s ruling Social Democrat Party (SPD), and Moscow. The regional premier Schwesig is, like Chancellor Olaf Scholz, a member of the SPD, which traditionally advocates rapprochement with Russia.

So, too, is Gerhard Schroeder, a former Chancellor who has described himself as Putin’s personal friend. One of his last acts in office in 2005 was to sign the deal creating the Nord Stream 2 project. Soon after, he became chairman of the company behind it – the first of several directorial positions he has taken at Russian energy companies.

Now, opposition to his lobbying is becoming increasingly heated across Germany. Schwesig and Schroeder declined to comment for this story.

In 2019, Scholz rejected the U.S. sanctions as interference in Germany’s affairs. On Tuesday, after Russia formally recognised the two breakaway regions, he decided to halt certification of the pipeline.

But some analysts say the damage to Germany is already done.

“Russia has succeeded in using the personal interests of prominent German political figures against Germany,” said Marcel Dirsus, Non-Resident Fellow at the Institute for Security Policy at Kiel University.

“All this is doubly dangerous for Germany: It allows an adversarial foreign power to influence decision-making and it raises questions about Germany’s reliability among the country’s allies.”

TRANSPARENCY CHALLENGE

The Foundation, housed in a grey townhouse next to a kebab shop, was funded from 200,000 euros ($227,000) given by Mecklenburg-Vorpommern, plus 20 million euros from Nord Stream 2. It said its prime goal was to act against climate change, arguing that even though gas is a fossil fuel, it’s needed as a clean alternative to coal until Germany can manage on renewable energy.

It promised a free tree and 500 euros to every kindergarten in the state, and said its secondary goal was to make sure the Nord Stream 2 pipeline was completed, “regardless of external efforts.” Even though Nord Stream 2 made up the majority of the Foundation’s funding, the Foundation would not reveal any information about its activities to beat U.S. sanctions.

“Transparency is very important to us,” Foundation Chief Executive Christine Klinger said in a telephone interview. But she added in a later email that as a foundation, her group was not obliged to respond to requests under the regional Freedom of Information laws.

In German law, an endowed foundation must spend all it earns from its capital on a public good: Deutsche Umwelthilfe, an environmentalist group, argues the Foundation was in violation of this law. The group brought a legal challenge against the Foundation in March 2021, arguing that it served the interests of the Nord Stream 2, a private business, not the public. That case continues.

Transparency watchdog Transparency International (TI) said the Foundation may have violated anti money-laundering legislation, since its claimed purpose was different from its actual purpose, which was to help Nord Stream 2.

“The mere fact that a foundation that is meant to be devoted to climate and environmental protection is … supporting the efforts of a Russian state company to build a gas pipeline and dodge international sanctions is questionable,” said Transparency International’s finance expert Stephan Ohme. “But the fact that the Foundation obscures who it is actually benefiting is a possible violation of German and European money-laundering laws.”

TI also argued that others with influence over the Foundation, such as Gazprom’s Chief Executive Alexei Miller and the Russian state, should also have been listed on the Foundation’s records in Germany’s national transparency register.

Foundation Chair Sellering dismissed TI’s claims as “total nonsense” in his TV interview, saying it was not true that the Foundation’s financial backers had any influence over its actions and that it was simply not wise to comment step-by-step when “disputing a world power.” He was referring to the United States.

The state government is not responsible for listing names in the transparency register or for policing it, a government spokesperson said, and declined further comment.

At least three senior members of the regional SPD are closely linked to the Foundation: Schwesig, the premier who backed legislation creating it; Sellering, its chairman, a former state premier; and Christian Pegel, a lawyer and former economy minister who introduced the legislation in the regional parliament and whom political colleagues describe as the brains behind it.

Sellering told Reuters earlier this month the Ukraine crisis was being used as an excuse by “significant forces in the United States and Germany who have always opposed the pipeline.” None of the politicians responded to Reuters requests for comment on Wednesday.

“GAS, NOT BLOOD”

As Chancellor Scholz suspended Nord Stream 2, pressure grew on him to take his predecessor Schroeder to task for lobbying for Gazprom.

Politicians from the opposition and junior coalition party the Free Democrats called on the government to strip Schroeder of his privileges as a former chancellor, such as an office with car and staff. Some said he should repay taxpayer money spent in previous years if the spending can in any way be linked to his lobbying activities.

Last week, at a meeting with Scholz in the Kremlin, Putin lavished praise on Schroeder and Scholz distanced himself from the former Chancellor. “He speaks for himself, not the government,” he said.

In Mecklenburg-Vorpommern, support for Nord Stream 2 is broad-based, including the regional CDU – Merkel’s party. Merkel, who has been critical of Putin, did not respond to a request for comment. People in the region have a different relationship to Russia from those in western Germany, said Franz-Robert Liskow, CDU parliamentary leader.

Just over 70% of regional respondents to a January 2021 poll by Forsa for the Ostsee Zeitung newspaper thought the pipeline would be important for Germany’s energy supply. In eastern Germany more broadly, 74% backed the pipeline last year, another poll found. After the U.S. moved to sanction the line, a third poll found 24% of East Germans thought Germany should respond with counter-sanctions.

The region’s ties to Russia are ancient. Even in the Middle Ages the cities of the German Baltic coast were intimately linked with Russia by sea. For many years, the region’s Baltic Sea ports had direct ferry and cargo routes to the Russian ports of St. Petersburg and Kaliningrad.

Its sea port of Mukran, the East German government’s last major infrastructural project, started in 1982, was meant to create a direct trade link to Russia bypassing Poland, then in a state of turmoil following the declaration of a state of emergency.

Deprived of its purpose after the Soviet Union collapsed, Mukran played an important role in construction of a previous pipeline and was used as a place to store materials before they were shipped to lay Nord Stream 2, a spokesperson told Reuters.

For Torsten Koplin, regional head of the hard-left Die Linke party that is the successor to the East German Communist Party, the Russian connection goes beyond economic gains. He argued that local people see the trade Nord Stream 2 represents as an opportunity to preserve peace.

On the street near the Foundation, office worker Roland Bentler echoed that view. He wondered aloud if freezing the pipeline “really was the most urgent decision” that Germany’s government needed to take in the Ukraine crisis.

“Positions will harden,” he said, “but I hope that reason will win out in the end and that gas will flow, not blood.”

(The story corrects to show state was site of Merkel’s constituency, not birthplace.)

(With additional reporting by Andreas Rinke in Berlin and Vladimir Soldatkin in Moscow; Edited by Sara Ledwith)

PARIS – A European arms procurement agency representing France, Germany, Spain and Italy signed a long-awaited contract with Airbus for the development of a new European military drone, Airbus said on Thursday.

The contract with procurement agency OCCAR includes the development and manufacturing of 20 Medium Altitude, Long Endurance systems and 5 years of initial in-service support.

Eurodrone will generate more than 7,000 high-tech jobs and strengthen European industrial sovereignty, Mike Schoellhorn, CEO of Airbus Defence and Space, said in a statement following a signing that coincided with the outbreak of conflict in Ukraine after lengthy delays in negotiations.

Airbus represents Germany and Spain, with Dassault Aviation involved for France and Leonardo for Italy.

(Reporting by Dominique Vidalon, Editing by Tim Hepher)

By Vera Eckert and Kate Abnett

FRANKFURT/BRUSSELS – Russian forces invaded Ukraine on Thursday, sending European gas prices higher and increasing the focus on gas supply in countries including Germany, which is Europe’s largest economy and imports most of the gas it consumes.

Dutch gas prices rose 30%-40% on Thursday amid concerns over supply disruptions, although export flows of Russian gas, oil and other commodities to the West remained steady in the hours after the invasion began.

Russia supplies more than a third of Europe’s gas.

German Chancellor Olaf Scholz on Tuesday halted the new Nord Stream 2 pipeline designed to bring more Russian natural gas to Germany, after Moscow formally recognised two breakaway regions in eastern Ukraine.

Here is the current state of play in Germany’s gas sector.

WHAT ARE THE NUMBERS?

In 2021, Germany imported 142 billion cubic metres (bcm) of gas, 6.4% less than in 2020, foreign trade statistics office BAFA, which does not identify the origins of imports, said.

Domestic gas usage was 100 bcm in 2021, utility industry group BDEW said.

Germany has 24 bcm of underground caverns of gas storage. A fifth of that is represented by Rehden, a unit owned by storage company Astora which is in turn owned by Russian company Gazprom. As such, total storage capacity could meet a quarter of Germany’s annual gas usage.

Germany’s storage caverns currently stand at 30% full, according to industry group Gas Infrastructure Europe data.

Domestic gas production peaked in the 1990s and now covers only 5% of annual consumption.

The chief executive of German utility Uniper last month pegged Russia’s share of Germany’s gas supply at half, although this can fluctuate from month to month.

ICIS analysis data for German supply showed that in December 2021 Russian pipeline gas accounted for 32%, Norwegian gas 20% and Dutch 12%, with storage 22% and the rest from other smaller sources including domestic production.

“Russia in its (gas supplier) role cannot be replaced during the next few years,” Maubach said.

German gas storage levels- https://graphics.reuters.com/GERMANY-GAS/dwpkrkmyyvm/chart.png

WHY DOES GERMANY NEED GAS?

Gas burning accounted for 15.3% of German electricity generation last year, according to BDEW.

Losing a large chunk of gas imports – from whatever source – could require a short-term increase in coal-fired generation at home or imports of power from neighbours to fill the gap.

The situation is more acute in home heating, where gas keeps half of Germany’s 41.5 million households warm, and in manufacturing industries where sectors such as ceramics cannot produce without the fuel.

German gas supply by source, Dec 2021 – https://graphics.reuters.com/GERMANY-GAS/movanwroepa/chart.png

WHAT OTHER TIES DOES GERMANY HAVE WITH RUSSIA?

Germany and Russia have had a strong energy supply partnership for decades. It was struck during the Cold War and remained strong despite ups and downs in bilateral relations.

Germany does not only need gas from Russia. BAFA showed that 34% of Germany’s crude oil came from Russia in 2021 and coal group VDKi said 53% of hard coal received by German power generators and steelmakers came from Russia last year.

WILL GAS DEMAND FALL?

Eventually it should, to comply with Germany’s pledges to reduce greenhouse gas emissions. Heating with gas will be phased out long-term in favour of heat pumps and other alternatives.

But in power generation, gas use is expected to rise for a transition period under plans to phase out coal and nuclear energy.

Future consumption will depend on the speed of Germany’s renewable energy roll-out and whether low-emission hydrogen produced from renewable sources such as wind and solar can be harnessed to replace fossil gas.

The International Energy Agency has said countries’ climate pledges would cut European gas demand to 504 bcm in 2030 from 596 bcm in 2020 although, going by governments’ “stated policies”, it would decrease only marginally to 587 bcm. The IEA has no breakdown for individual countries.

WHAT ALTERNATIVES DOES GERMANY HAVE?

EU officials have sought alternative gas supplies in recent months from countries including the United States, Qatar, Azerbaijan and Japan, amid escalating tensions with Russia, the EU’s biggest gas supplier.

Europe’s liquefied natural gas (LNG) imports hit a record high of nearly 11 bcm in January, with nearly half coming from the United States.

In Europe, LNG is received in Britain, along the northwestern European coast and in the Mediterranean – a still young and growing industry. Germany does not have domestic LNG infrastructure, but the Dutch Gate landing terminal with 12 bcm handling capacity supplies western German customers.

Europe competes with Asian buyers to secure cargoes in global LNG markets, where swings in demand can cause volatile and high prices.

As for pipeline gas, European utilities have rolling purchasing agreements with Russia for up to 30 years at a time with take-or-pay options and linked to agreed-upon benchmarks such as oil or spot prices at virtual European gas trading hubs.

Knowledge of when which contracts are renewed and at what terms is up to counterparties to publish, and transparency can be minimal.

(Reporting by Vera Eckert and Kate Abnett; Editing by Alexander Smith)

By David French

– Quantum Energy Partners is raising a $2.25 billion fund that will lend to U.S. oil and gas firms as well as energy companies transitioning away from fossil fuels, allowing investors to pick whether they back activities that lead to higher greenhouse gas emissions, according to people familiar with the matter.

Founded in 1998, Quantum continues to be one of the most active private equity firms in the oil and gas sector but, like others which have traditionally invested in hydrocarbons, it is spending more time focused on cleaner forms of energy.

Quantum’s fundraise comes as U.S. crude prices near $100 per barrel for the first time since 2014, driven by supply constraints and geopolitical concerns such as Russia’s claims over Ukraine.

Many banks are still not comfortable lending to small and medium-sized U.S. oil and gas exploration and production companies because they are nursing losses from previous energy price plunges, ceding market share to private equity firms such as Quantum that are willing to step up and provide credit.

Concerns over the impact of the energy industry on climate change has also given some banks pause.

While private equity firms still find eager investors for their energy credit funds among sovereign wealth funds and insurance companies, investors, including some public pension funds, have become wary of supporting the production of fossil fuels that lead to greenhouse gas emissions.

Heeding these concerns, Quantum decided that its new fund will have two sleeves: a $1.5 billion tranche for lending to oil and gas producers and a further $750 million for companies supporting the transition away from fossil fuels, the sources said. Investors can choose if they want to invest in one or both.

The sources spoke on condition of anonymity to discuss confidential information. Quantum declined to comment.

The cash deployed will be in senior secured and direct lending, as opposed to the type of mezzanine loans extended using Quantum’s previous debt fund, the sources said. Senior secured debt is paid out before mezzanine in a bankruptcy, making it a safer bet for Quantum.

It is the second energy debt fund for Quantum. The Houston-headquartered investment firm raised a $1.6 billion fund in 2019 that was used to provide structured credit and mezzanine finance to oil and gas companies, including Devon Energy Corp and Antero Resources Corp.

(Reporting by David French in New York; Editing by Tim Ahmann)

COPENHAGEN -Shipping group Maersk said on Thursday it has halted all port calls in Ukraine until the end of February and has shut its main office in Odessa on the Black Sea coast, as a consequence of the conflict with neighbouring Russia.

“Services in Russia remain available while we have decided not to call any ports in Ukraine until 28 February and stop acceptance orders to and from Ukraine up until further notice,” a Maersk spokesperson said.

All of the company’s 60 employees in Ukraine were at home and safe, the spokesperson added.

Maersk has two container shipping routes in Ukraine and they call at the port of Pivdenniy some 30 kilometres (19 miles) east of Odessa.

(Reporting by Stine Jacobsen and Jacob Gronholt-Pedersen; Editing by Alison Williams and Susan Fenton)