Energy Newsletter
February 2011
Global Fund Exchange is a global
asset management business
which invests across all areas of
the New Energy Revolution.
In this issue:
• Opportunities in Agriculture
• Global Water Scarcity
• Saudi Arabian Renewable Energy
• European Off-shore Wind
• ‘Big Oil’ Capex Spending
• New Rare Earth Mining Initiatives
Our investment focus :
• Clean Energy
• Water
• Agriculture
• Traditional Energy
• Natural Resources
• Carbon & Emissions
• Systematic Trading
• Hedge Strategies
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SPOTLIGHT ON: OPPORTUNITY IN AGRICULTURE
Does more volatility mean more investment opportunity
in global agriculture? by Lauralouise Duffy
For many years, we have been studying and actively investing in global
agriculture, which as of late has been extremely volatile. The question on many
investors’ minds is will this increased volatility translate into attractive
investment opportunity?
The Agriculture Commodity Markets Research Outlook 2011 from Rabobank
highlights seven key themes influencing global agricultural commodities in 2011.
We feel this information is important for all investors in this space:
1. Tightening inventory levels for many agricultural products, with stocks-to-use
levels similar to what was seen during the 2007-2008 food crisis period.
2. Supply limitations may result as 2011 production increases are used to build
up reduced stock levels that were depleted over the past year.
3. Emerging markets have recovered faster than the developed world from the
global economic crisis, and demand for agricultural products has risen in turn.
4. Chinese demand for commodities is now a driving force in the global
agricultural sector. Demand is particularly high for soybeans, sugar, cotton and
corn. “China has played a key role in transforming the global soybean markets,”
explains Rabobank’s Luke Chandler. “China now accounts for 60 per cent of global
soybean imports, in addition to approximately 20 per cent of world traded
soybean.
5. Heightened political risk amid tightening food supplies are a top priority for
governments around the world. This has resulted in increased government
participation in the agricultural markets.
6. Fundamentals are only part of the story, analysts say, with the influence of
external macro factors becoming more and more important. The projected
increase in energy prices over the coming year will also affect commodity prices.
7. Sustained heightened volatility is likely here to stay, the report concludes. We
are constantly scrutinizing market news and data to uncover trends and
opportunities in this important investment sector.
GLOBAL FUND EXCHANGE LTD.
Investing in the Future of Energy
AGRICULTURE NEWS
Brazilian Agricultural “Revolution” Can
Provide a Model for the World
Farming in the cerrado region of Brazil
As the world grapples with the challenge of how to feed an
estimated 9 billion people by 2050, many point to Brazil as
an example of a nation that has experienced a near
miraculous transformation of its agricultural sector.
Brazil has shifted from a net importer of food to a powerful
force comparable to the “big five” food exporters (U.S.,
Canada, Australia, Argentina and the E.U.). It is also the
world’s first tropical agricultural giant.
Between 1996 and 2006, the total value of the Brazil’s
crops rose 365% from 23 billion reais (US$ 13.7 billion) to
108 billion reais (US$ 64.5 billion.) Overtaking Australia as
the world’s largest exporter of beef, Brazil’s exports have
increased tenfold in a decade. It is also the largest exporter
of poultry, sugar cane and ethanol, and now accounts for
one-third of world soybean exports. Remarkably, Brazil’s
soybeans are farmed on a mere 6% of the country’s total
arable land.
Government subsidies have not played a major role in this
agricultural transformation. In fact, federal agricultural
support in Brazil is comparatively less than other major
agricultural exporters. According to OECD data, state
support accounted for 5.7% of total farm income in Brazil
during 2005-07, comparing with 12% in the U.S., 26% for
the OECD average and 29% in the E.U.
What then is Brazil’s secret? Heavy investment in
agricultural science research and technology development.
Empresa Brasileira de Pesquisa Agropecuária, or the
Brazilian Agricultural Research Corporation, was set up by
the state in the 1970s and since then has become the
global leader in tropical agricultural research. The company
has made advances in optimizing the soil composition of
the cerrado region, improving grass varieties and modifying
soybeans for tropical growing environments.
The end result of this research has been an agricultural
explosion in the cerrado region, which supplies 70% of
Brazilian exports and has been called “the new Midwest.”
Supply/Demand Disruptions Cause Food
Prices to Soar
World food prices rose to a record in January on higher dairy,
sugar and cereal costs and are likely to remain elevated, the
United Nations said in
a recent report.
An index of 55 food
commodities climbed
3.4% from December
to January 2011, the
seventh straight
increase according to
the UN’s Food and
Agriculture
Organization (FAO).
Among the five food
categories, dairy
prices led advances
with a rise of 6.2%.
Food commodities
extended gains last Source: UN FAO
month after jumping
in 2010 as drought and floods damaged crops from Russia to
Argentina.
“The new figures clearly show that the upward pressure on
world food prices is not abating,” Abdolreza Abbassian, senior
economist at the FAO, said in a statement. “These high prices
are likely to persist in the months to come.”
Corn prices – and with them, the price of meat – are set to
explode if the latest import estimates from China are correct.
China, the world’s second-largest corn consumer, probably will
quintuple imports of the grain in the next five years as demand
increases for livestock feed, according to the U.S. Grains
Council. Last year, Beijing recorded its largest imports of corn
since its disastrous crop of 1995-96. But this year could see
further record purchases. The US Grain Council reported
recently that it estimates Chinese imports as high as 9MM tons
in 2011-2012, up from only 1.3MM tons in 2010-2011.
With the cost of corn critical for the entire supply chain, high
corn prices lead to higher prices for poultry, pork, lamb and
beef, emerging countries that are already suffering from high
inflation could be facing a more intense shock of agflation than
previously thought.
Sugar cane plantations in Australia, the third-largest exporter,
suffered severe damage after Tropical Cyclone Yasi cut through
an area accounting for a third of output, helping send futures
prices to a 30-year high.
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WATER NEWS – GLOBAL WATER SCARCITY
In the Middle East:
Water scarcity in the Gulf region is a serious and growing
problem, according to the United Arab Emirates National
Emergency and Crisis Management Authority.
As demand increases, said Director General Mohammed
Khalfan al-Rumaithi, the UAE may need to make harsh choices
between using water for direct human consumption vs.
agricultural irrigation.
“Wars can erupt because of water,” he warned. “Using
groundwater for agriculture is risky. If it doesn’t harm us, it
will harm other generations.”
The UAE is one of the highest per capita water consumers in
the world. Abu Dhabi on average uses 550 liters of water per
person per day, compared with the global average of 180-200
liters.
Source: International Water Management Institute
Freshwater reserves in the UAE are expected to dwindle
within the next five decades, leaving the Emirate dependent
on groundwater extraction and desalination.
The UAE, along with many neighboring Middle Eastern
nations, is investing in farmland on other continents such as
Africa, both as a means to secure future food supplies as well
as reduce domestic water usage.
“We suffer from a shortage of water and we should think
about solutions to preserve it rather than using it for
agriculture,” Mr. Rumaithi told the Federal National Council
during a discussion of food and water security.
Last October, Abu Dhabi laid the groundwork for the world’s
largest underground reservoir, which would hold 26 million
cubic feet of desalinated water, enough to meet rationed
demand for 90 days in the case of an emergency.
In the American Southwest:
Researchers at Scripps Institution of Oceanography at UC San
Diego have warned that Lake Mead, a key water resource in
the region, could be dry by 2021 as a result of growing water
demand and the unpredictable effects of climate change.
Should water levels in Lake Mead or Lake Powell fall, the
Southwest will be entirely reliant on the Colorado River, a
potentially dangerous dependency, considering the recent
periods of sustained drought in the region.
Southern California’s Imperial Valley, which produces about
80% of winter vegetables in the United States, is also facing
water threats. Farmers in the Imperial Valley irrigate their
farms from water diverted from the Colorado River. However,
water from the Colorado is under heavy demand from rising
urban and suburban centers throughout the area, from the
bright lights of Las Vegas to sprawling communities in Arizona.
Water levels in the Colorado River have been declining for
years, yet water demand is ever-increasing, leading to what
we believe is an unsustainable situation going forward.
In China:
To address lingering drought in the grain-producing regions in
the North, the Chinese government has announced over $1
billion in spending measures to divert water, build emergency
wells and construct new irrigation infrastructure.
Official data shows nearly 2.57 million people and 2.79 million
livestock have suffered from shortages of drinking water as a
result of the droughts, which are the worst in over 60 years.
The UN’s Food and Agriculture Organization (FAO) has issued
warnings on the potentially devastating impact on the winter
wheat crop. “The ongoing drought is potentially a very serious
problem,” the agency warned. These grave water concerns
have prompted China to invest a further $608 billion in water
conservation projects. According to a central policy document
known as the No 1 document, China will proceed with efforts
to promote conservation and sustainable use of water.
Over the next decade, China will invest 4 trillion yuan (US$ 608
billion) into water projects, says Chen Xiwen, director of the
office for the Communist Party of China (CPC) Central
Committee’s Leading Group on Rural Work.
China aims to double its average annual spending on water
conservation over the next 10 years. It will assist the water
sector in securing loans and raising private investment for
water conservation efforts.
“Floods and drought in recent years have exposed weaknesses
in water conservancy infrastructures,” the document said.
Last year, Southwest and Northern China experienced severe
droughts, and other regions across the nation dealt with major
flooding and mud-rock flows.
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RENEWABLE ENERGY NEWS
Saudi Arabia Looks to Renewable Energy
Site of The King Abdullah City for Nuclear and Renewable Energy
Despite possessing vast oil reserves, Saudi Arabia is
discovering that increasing domestic energy demand has had
an effect on its oil exports. The nation has embarked on a
strategic plan to explore the use of renewable and nuclear
energy to meet growing demand.
“We have started to take the required steps to utilize several
energy sources locally, in particular solar and nuclear
energy,” said Saudi Oil Minister Ali al-Naimi.
“The demand for electricity is steadily increasing — it was 40
gigawatts in 2010, and is expected to reach 120 gigawatts in
2032,” remarked Hashem Yamani, the director of the King
Abdullah City for Atomic and Renewable Energy, to
journalists at a recent conference in Riyadh.
Simultaneously, he added, “local demand for oil, which is
currently about 3.2 million barrels per day, could rise to eight
million barrels per day by 2028.”
An increase of this magnitude may limit Saudi Arabia’s
capabilities to export to the rest of the world and would be
an obstacle for future development.
“That is why we are determined to transform a country
dependent solely on oil to different sources of energy —
nuclear and renewables,” Mr.Yamani said.
Over the next decade, the Kingdom will spend $80 billion to
increase its power generation capacity and its energy
transmission network.
Emerging Economies to Drive Primary
Energy Growth : BP Energy Outlook
Although new energy regulatory policies and the deployment
of clean technologies may help slow global carbon emissions,
BP nevertheless predicts total emissions in 2030 will be 27%
higher than today in its Energy Outlook 2030 statistical report.
BP also predicts over the next two decades emerging
economies will drive a 40% growth in primary energy use.
A whopping 93% of new energy growth will come from
emerging economies as Chinese oil consumption grows by 8
million barrels a day (mbpd). By 2030, Chinese consumption
will likely reach 17.5mbpd, bringing it ahead of the United
States as the world’s largest consumer of oil.
BP suggests the global energy mix will change as the world
adds production capacity in order to meet new demand.
Although fossil fuels contributed 83% to consumption growth
between 1990-2010, BP expects this contribution to fall to
64% between 2010-2030. In addition, oil’s share of total fossil
fuel usage is expected to decline gradually as use of natural
gas increases. Despite the recent spike in coal use as a result
of voracious demand from China and India, BP expects this
growth trend will reverse somewhat by 2030.
At the same time, BP predicts the use of renewable energy,
nuclear power and hydropower will increase over the next 20
years. Taken together, non-fossil fuel energy will for the first
time make the largest contribution to all new energy usage,
from 5% today to potentially 18% by 2030.
Offshore Wind Power Booming in Europe
Europe is currently the world’s fastest moving market in
offshore wind technology, says the European Wind Energy
Association (EWEA), a Brussels-based agency with over 60
member countries. According to its year end data, 2010
marked a 51% increase in European offshore wind installations
In total, €2.6 billion was invested in 308 new offshore turbines,
representing 883MW of new power capacity.
As part of the EWEA, the United Kingdom leads the global
market in offshore wind. In Europe, the UK is followed by
Denmark, the Netherlands, Belgium, Sweden and Germany.
Possessing 25% of the region’s offshore wind resources,
Scotland could grow to become Europe’s largest offshore wind
center. Gamesa is reportedly setting up its offshore wind
headquarters in Scotland, confirming the area’s growing
attractiveness to the industry.
With potentially 1,000 to 1,500MW of newly installed capacity
coming online in 2011, Europe will need new grid
infrastructure. Ten countries on the Northern coast have
joined forces to develop a high-voltage DC current “supergrid”
to link offshore wind farms to the central grid, but the project
is currently in early stages of planning.
In contrast the United States, which is still in administrative
struggles to develop its first offshore wind farm off the
Massachusetts coast, Europe is at the forefront of this growing
industry.
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TRADITIONAL ENERGY NEWS Leaked Cables Highlight Fears of Saudi “Peak
Oil”
Big Oil Capex Spending Could Top 2008
Records
Looking to increase production and take advantage of high
oil prices, analysts expect significant new capital investments
from the ‘Big Oil’ companies in 2011.
Spending from the world’s top publicly traded oil companies;
ExxonMobil, Chevron, ConocoPhillips, Royal Dutch Shell, BP
and Total; may reach record levels in 2011, says ING oil and
gas analyst Jason Kenney, potentially reaching $128.54bn, a
$10bn+ increase from 2010 spending levels. This amount
could top the record $127bn spent by Big Oil in 2008.
Offshore drilling exploration will be a high priority as oil
majors seek to broaden their resources and plan for the
future. “In 2014, about 63% of the majors’ new source
production is forecast to come from the offshore – shallow
water and deepwater,” notes Rebecca Fitz of consulting
Oil pipeline Source: Adam Lee
group PFC Energy.
However, the consequences of the BP oil spill are being felt Confidential cables published by WikiLeaks suggest that the
throughout the industry. Ramifications from the spill will U.S. is worried about declining production capabilities and
prompt companies to pay more attention to safety and the stated oil reserves of Saudi Arabia, the world’s largest
regulatory compliance procedures during offshore producer of oil.
exploration and production. Associated costs, especially in
The cables were written between 2007-2009, including the
North America, are predicted to rise as a result.
time of global oil price peaks in 2008.
One exchange warned that Saudi Aramco, the state oil
Oil Breaks $100 on Middle East Fears production company, no longer possessed the ability to
influence global prices by raising oil output.
Political turmoil in the Middle East has pushed oil prices over
“A series of major project delays and accidents over the last
$101 a barrel, its highest level in over two years and an
couple of years is evidence that Saudi Aramco is having to
important psychological marker for the market. The
run harder to stay in place – to replace the decline in existing
immediate worry for many investors is whether revolts in
production,” one of the cables read.
Egypt and Tunisia will intensify instability among the more
significant oil exporters, such as Saudi Arabia. Another cable warned Saudi Aramco may have overstated its
recoverable reserves by as much as 40%, or approximately
Although analysts clearly see a fear factor in the market, the
300 billion barrels.
International Energy Agency (IEA) has attempted to alleviate
fears of another oil price spike. The IEA has highlighted Dr. Saded al-Husseini, a former exploration engineer and
certain fundamental differences between today’s situation board member of Aramco, said based on current production
and the situation in July 2008, when oil reached an all-time rates, Saudi Arabia would likely reach the “peak oil” inflection
high of $146 a barrel. point – where new production cannot sufficiently make up
declining older fields – in around 17 years. By that time,
For one, global oil stocks are also nearing 10 year highs and
peak oil for the world as a whole will have already come and
would be sufficient to cover approximately 61 days of
gone.
forward oil demand. Current spare tanker capacity is also
sufficient enough to deal with any potential disruptions to The content of these classified cables is in contradiction to
supply routes. other recent statements from Saudi Aramco executives,
many of which have boasted that levels of oil production in
Nevertheless, we have witnessed the volatile political Saudi Arabia can be maintained for a century, as opposed to
situation in the Middle East translate into volatility in the the 17 years suggested by Dr. al-Husseini.
marketplace, and expect this will continue as the conflicts
persist. As a result, we are keeping a close eye on all
political developments in the region, especially those related
to oil production, refinement and transportation.

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NATURAL RESOURCES NEWS
New Mining & Technology Plans to Counter China’s
Dominance of Rare Earths
The world’s growing appetite for clean energy technology, advanced
batteries, electric vehicles and various high-tech devices has prompted an
increase in demand for rare earth materials.

China dominates this market with over 90% of all global supplies, with the
United States, Japan and South Korea almost entirely dependent. China has
indicated it will reduce exports of these crucial elements, sparking a panic
amongst clean tech and battery manufacturers worldwide.
Rare earth elements on the periodic table

Companies around the world are seeking new rare earth mining regions, and Mongolia has been drawing significant attention.
By some estimates, Mongolian deposits of rare earths may rival that of China. A recent joint venture between Green Technology
Solutions and Rare Earth Exporters of Mongolia has been struck to transport Mongolian supplies over land to the Russian seaport
of Vladivostok, thereby by-passing Chinese ports entirely.
Governments in the United States, Canada and Australia have begun to look into mining their own rare earth reserves for fear of
a shortage once China restricts its exports. The United States government views rare earth supplies as an important factor in
energy security, and the Department of Energy recently released a Critical Materials Strategy examining ways to secure supplies
for future demand.
The Obama administration has also “fast-tracked” permitting to reopen Molycorp’s rare earth mine near Mountain Pass,
California to boost U.S. domestic supplies. It is clear that securing supply chains of these important elements is essential for
future development of the clean energy industry in the United States, and around the world.

SOURCES
We regularly gather information from the following reputable sources, including but not limited to:

Bloomberg New Energy Finance RenewableEnergyWorld.com

Financial Times EnergyandCapital.com
Forbes.com: Energy News The Wall Street Journal
Green. – The New York Times Streetwise Reports: The Energy Report
New Energy World Network Thomson Reuters
Scientific American REChargeNews.com
SustainableBusiness.com Climate Change Business Journal
WEB LINKS:
U.S. Energy Information Administration (EIA) Commodity Futures Trading Commission
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