Energy Newsletter

March 2011
Global Fund Exchange is a global asset management business which invests across all areas of the New Energy Revolution.
In this issue: • AquaTerra Fund Launch • “The Age of Anthropocene” • Nuclear Crisis in Japan • Tightened Global Grain Stocks • Demand for Rare Earth Elements • Abu Dhabi Desalination Initiative Our investment focus: • Clean Energy • Water • Agriculture • Traditional Energy • Natural Resources • Carbon & Emissions • Systematic Trading • Hedge Strategies Learn more: • Downloads Section • Request call with Portfolio Manager

New Investment Vehicle Dedicated to Agriculture, Water & Natural Resources; Launches on World Water Day 2011
Global Fund Exchange is pleased to announce the launch of the AquaTerra Fund, a new investment vehicle which invests in global opportunities in agriculture, water and natural resources. The AquaTerra Fund is a carve-out of the existing agriculture, water and natural resources strategies of the flagship Earth Wind & Fire Fund.

The AquaTerra Fund will be open to new investors on March 22, 2011, a date that coincides with World Water Day 2011 – the day of global action devoted to water, one of the cornerstones of the AquaTerra Fund’s investment strategy.
“The sustainability and efficiency needs for our water and food resources are the most critical ‘must outcome’ for Planet Earth,” said Global Fund Exchange CEO Lauralouise Duffy. “The AquaTerra Fund is a focused investment on these vital assets.” We believe meeting increased demand for food, water and natural resources is the challenge of the century, and the statistics are staggering: AGRICULTURE - With global population predicted to top 9 billion by 2050, the UN Food and Agriculture Organization (FAO) says agricultural output will need to increase 70% to meet new demand. WATER - By 2025, global demand for freshwater expected to exceed current freshwater resources by 25%. NATURAL RESOURCES - Rapid economic growth in developing nations continues to escalate resources supply and demand disparities. “The best investments are when necessity creates opportunity,” said Global Fund Exchange Chairman Anric Blatt. “We are launching the AquaTerra Fund to offer our clients a focused, disciplined investment opportunity that capitalizes on these major global trends.” For more information, please visit: World Water Day website:

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Investing in the Future of Energy

To celebrate the launch of AquaTerra, we have dedicated this month’s newsletter to Agriculture, Water and Natural Resources – the fund’s fundamental investment strategies.

“The Age of Anthropocene” – a special feature from CEO Lauralouise Duffy
“The Age of Anthropocene” – a new name for what some scientists call a geologic epoch, whereby Man is responsible for the catastrophic changes on the planet, particularly in agriculture and water. According to a recent article in National Geographic, it is not the building of magnificent cities or the innovative technologies of the last 25 years that scientists will remember thousands of years from now. Rather it is the massive impact that humans have on the planet that will leave a sign for future geologists and scientists. Human impact on the world has become a lot more obvious in the last 150 years in part because the population has quadrupled to nearly 7 billion people. Additionally, affluence has clearly led to greater consumption of energy and other resources, while technology provides new tools for exploiting and consuming. These factors have compounded since 1900. The threats are widespread…
Site of The King Abdullah City for Nuclear and Renewable Energy

Ocean acidification is a global threat to sea life and coral, representing a major cause for extinction. As carbon dioxide warms the planet, it also seeps into the oceans and acidifies them. Bi-products of oil such as plastic and other chemicals are toxifying our oceans and creating dead zones where no sea life can survive. Extinction of plants, animals and habitats is happening at a rate hundreds of times higher than during most of the past half billion years, according to geologists. Three top reasons for animal extinction are: Deforestation, Destruction of Habitat & Global Warming. Agricultural Waste: Nitrogen runoff from fertilized land causes dead zones at the mouths of rivers and poisoning freshwater resources worldwide. Waste & residue from harvesting of coal and oil results in destroying freshwater supply. Leveling of the world’s forest changes the ecosystems and is a major cause of extinction for animal and plant life, erosion and global warming. As scientists debate what our planet looks like as a result of the Age of Man (now being coined the Age of Anthropocene), perhaps it is time for Mankind to write our own history. I agree that it is time to focus on the consequences of our collective action in the here and now. Human actions have an undeniable impacts on our planet’s water, food and natural resource supplies – all of which are essential for life on Earth.

By Lauralouise Duffy, CEO


Earthquake & Tsunami Spark Nuclear Crisis in Japan

Global Energy Markets Experience Roller Coaster Ride Due to Middle East, Japan

The unforeseen events of this month have been challenging for the global energy and resources markets, as investors struggle Battered by a severe earthquake and tsunami which caused to make sense of ongoing political tension in the Middle East, horrific destruction and loss of life, Japan is now scrambling to and now the natural disasters in Japan. contain damaged nuclear power plants, some of which have As a result of political unrest in the Middle East and supply undergone partial meltdown. disruption in Libya, West Texas Intermediate (WTI) and other Japanese nuclear safety agencies have reported areas with crude oil spots have risen nearly $15 per barrel according to higher than normal radioactivity due to explosions at nuclear data from the Energy Information Administration (EIA). This power plants. The market has reacted strongly with a jump has brought crude prices to their highest points since dramatic sell off of nearly all stocks related to nuclear energy 2008, prompting the EIA to raise its price forecast for 2011 up and uranium, leaving some investors wondering if the recent to $105 per barrel, a full $14 dollars higher than previous “renaissance” in nuclear energy will be reversed as a result of estimates. this catastrophe. Energy markets have also been impacted by the recent crisis in Japan. With nearly 20% of Japan’s power capacity shut off, analysts are expecting a drop in demand for crude oil coupled with a potential spike in demand for refined products. Many foresee an uptick in demand for liquefied natural gas (LNG) and fuel oil as replacements for lost nuclear power generation. Shell recently confirmed it had begun diverting shipments of LNG to Tokyo in the wake of the explosions. As a result, this may lead to higher prices in Europe. “Japan will change mid-term world energy scenarios,” acknowledged the United Nation’s top climate official Christina Figueres in a response to the situation in Japan. Certainly the risks surrounding nuclear power generation have been magnified on the world stage, potentially derailing investment into new plants. As a result, wind power and natural gas may become more attractive power sources. We will be closely watching the supply and demand patterns as they adapt to the current situation, as these events could accelerate macro trends in clean energy.

Map of Japanese nuclear power plants

The effects are being felt around the world. Nuclear power supplies nearly one-quarter of German electricity, but following the events in Japan German Chancellor Angela Merkel announced a minimum three month moratorium on nuclear power plants built before 1980, shuttering them until June at the earliest. These closures affect 7 out of the nation’s 17 nuclear plants which provide approximately 8% of Germany’s electricity. Despite these developments, global opinion on the future of nuclear energy is far from settled. Analysts at J.P. Morgan, for example, do not interpret the sudden slide in uranium as a reversal of a longer-term trend. “Helping uranium is the fact that China barely has enough supply to meet half its current needs,” read a morning note. Indeed, Chinese officials have stated that they will proceed as planned with their nuclear energy expansion program. According to the International Energy Agency (IEA) China has 11 active reactors, 20 in the construction pipeline, and further plans to build 120 additional reactors. President Obama has also made statements to support nuclear energy and its continued expansion in the United States.

Japan Crisis May Impact Rare Earth Prices
The aftermath of the devastating earthquake and tsunami in Japan has resulted in a precipitous drop in demand from one of the world’s major users of rare earths. As a result, analysts report rare earth prices may ease temporarily. Over the long term, however, the rare earth pricing trend is heading higher, as global demand trumps supply over the coming years. Rare earths are essential components of devices ranging from wind turbines to smart phones. China now controls nearly 95% of rare earth production, however Chinese reserves account for only one-third of total global reserves. Over the long term, China may become a net rare earth importer as its domestic demand increases. In fact, a new refining operation in Malaysia currently under construction by Australian mining company Lynas (LYC) may give China a run for its money in the rare earth market. Upon completion, the new plant on the eastern coast of Malaysia may be capable of processing about 11,000 tons of rare earth oxides a year; potentially meeting one third of total global rare earth demand in as little as two years.


AGRICULTURE NEWS World Grain Stocks, Already Strained, May Tighten Further: Yara International
World grain stocks, already squeezed, are in danger of tightening further in 2011-12, warns top global nitrogen producer Yara International. Pointing to poor winter crop conditions and an incomplete rebound in fertilizer sales, the Norway-based giant says world grain production must rise 5% to nearly 2.3bn tons in order to meet demand.
“A substantial harvest increase in the 2011-12 season is needed merely to avoid a further decline in inventories,” Yara said, which anticipates an approximate 2% rise in consumption. However, global wheat crops have suffered due to severe drought in China and lower output from the United States, the world’s largest producer. Farmers are using less nitrogen than in 2007-2008, which Yara says implies less support to yields. “Season-to-date nitrogen fertilizer deliveries in Western Europe are 13% ahead of last season, but still 4% behind the 2007-08 season, when farmers also had strong incentives to increase fertilizer application. To match the 2007-08 season, deliveries in the second half of this season would need to be 20% higher than last year.” In the US, nitrogen deliveries were 4% behind 2007-08 rates. Yara’s assessment is in line with other preliminary estimates. The Commonwealth Bank of Australia is forecasting a 15 million ton deficit in world wheat production, after a 17 million ton shortfall this season. Likewise, Macquarie foresees a 2 million ton shortfall in world soybean and wheat production, but anticipates the global corn harvest will grow by nearly 5 million tons. For 2011-2012, Societe Generale predicts a 16 million ton increase in combined corn, soybean and wheat stocks due to an uptick in corn production. Levels of crop inventories are seen as a key signal of price movements, particularly when compared with consumption to calculate the stocks-to-use ratio.

U.N. Food & Agriculture Index Reaches All Time High
Economists from the International Monetary Fund (IMF) warn that “the world may need to get used to higher food prices” as a “structural shift in demand” contributes to higher prices for food and agricultural commodities.
The UN Food and Agriculture Organization (FAO) index of global food prices increased for the 8th consecutive month, reaching a record high in February. The FAO Food Price Index (FAOFOODI:IND) averaged 236 points in February, up 2.2% from January. This is the highest record in real and nominal terms since the FAO began monitoring food prices in 1990.

1yr chart 2/10 – 2./11 Source: Bloomberg

Global Coffee Prices Reach New Highs; Up 125% in Past Year

The IMF acknowledges some temporary factors, such as the weather, have impacted prices. “Nevertheless,” the agency says, “the main reasons for rising demand for food reflect structural changes in the global economy that will not be reversed.” It may take years of additional supply growth to catch up with roaring demand.

The changing diet of citizens of emerging economies – particularly in Asia – is the most important factor contributing Arabica coffee prices have risen to a 34-year high with the to rising food prices. The dietary shift towards meat and other International Coffee Organization in London predicting prices livestock products, has resulted in greater demand for grain as would remain high for the time being. “Given the limited a source of livestock feed. availability of Arabica coffee on the international market and the strength of domestic consumption in Brazil, high levels of The FAO predicts per capital consumption of livestock production in Brazil in crop year 2010-11 failed to have a products in East Asia will rise to 58.5 kg/year from 37.7 kg/year in 1999; the highest regional growth rate in the world. negative impact on prices,” according to a monthly report. This development is mainly due to the influence of China and Arabica prices are now rapidly approaching the $3/pound level the changing dietary patterns of its large population. last seen in 2008. Coffee traders believe prices may break past $3.40 a pound, forcing roasters to raise retail prices once more. Recent turmoil in the Middle East and the resultant rise in oil Colombia, a primary source of high-quality Arabica beans, had prices does not bode well for global food prices. The FAO says suffered a low crop for a third successive year. The Brazilian rising oil prices could “further exacerbate an already precarious situation in food markets” because fuel plays an crop is also lower than previously expected. important role in the entire agricultural production cycle. The wholesale price of Arabica coffee has jumped nearly 125% during the past year.


Abu Dhabi to Build World’s Largest Underground Reservoir
In the Persian Gulf region, only water can be more precious than oil. Governments are taking no chances in protecting their valuable water resources and funneling significant investments into the water sector. In October, Abu Dhabi, the wealthiest emirate of the United Arab Emirates federation, launched a pilot for the world’s largest underground reservoir designed to hold 26 million cubic meters of desalinated water. Desalinated water supplies are becoming more important to Gulf nations as natural groundwater reserves are depleted. Based on current consumption rates, the UAE risks depleting its groundwater reserves within 50 years. Abu Dhabi has quadrupled its desalination capacity over the last decade. It is estimated that if desalination water plants were damaged, Abu Dhabi and the other emirates would only have a four day supply of water. Desalination plants face risks from natural disasters and oil spills in the Strait of Hormuz, where 40% of the world’s seaborne oil passes through. Security is also a major concern. “A desalination plant is a large factory sitting on the coast, something that you could easily blow up with a bomb or a missile. You could bring the country to its knees,” said Hady Amr of the Brookings Doha Center. Abu Dhabi’s massive aquifer project is buried beneath the scorching sands of the Empty Quarter, a desert stretching from the UAE to Saudi Arabia. Upon completion, the reservoir will store 90 days of rationed water for its citizens. Influenced by Abu Dhabi’s initiative, Qatar, Kuwait, Saudi Arabia and Oman have all expressed new interest in building aquifers. “Iran and Iraq have rivers. We [other Gulf states] don’t. So in the future, they have the upper hand,” said Sami al-Faraj of the Kuwait Centre for Strategic Studies. “We need strategic storage against any type of emergency,” agreed Mohammed Dawoud, head of Water Resources at Abu Dhabi’s Environment Agency. The severe water scarcity in the Gulf has been called the region’s ‘Achilles’ heel.’ At one point, Saudi Arabia even considered transporting icebergs from the South Pole for water. Lack of water resources has a direct effect on the region’s economy. “We can’t plan (Abu Dhabi’s) Ferrari World and not think about water supply, or a World Cup in Qatar and not water,” noted Faraj. “They don’t have any alternative to desalination plants,” said Bruce Riedel of the Brookings Institution in Washington. “Of their many vulnerabilities, this one is their most acute.”

Scientists Warn of Serious Water Woes; Spending to Increase to $1 Trillion Annually
Experts warn demand for water in agriculture and energy production could spike in the coming decades while catastrophic floods and droughts strike more often. “At unpredictable times, too much water will arrive in some places and too little in others,” said Zafar Adeel, chair of UN Water, a group which coordinates water-related efforts of 28 United Nations organizations and agencies. In many countries, water demand is forecast to exceed supply by an estimated 40%. In other parts of the world prone to flooding, catastrophic floods normally expected once a century could occur every 20 years instead.

Water scarcity and drought is a global issue

Meanwhile, spending on technologies and services to discover, manage, filter, disinfect and desalinate water, improve infrastructure and distribution, mitigate flood damage and reduce water consumption by households, industry and agriculture is expected to rise to a trillion dollars annually by 2020.

Insurance claims resulting from extreme weather increased 20-fold in the past 30 years according to Canadian insurance data, and flood-related claims now exceeding fire and wind insurance claims every year.
“Virtual water” is also another hot topic issue. The term refers to water that is inherently required in the manufacturing and production of items as varied as hamburgers to wine to a pair of pants. The annual global trade in “virtual water” now exceeds 800 billion tons, the equivalent of 10 Nile Rivers. As citizen wealth grows in developing countries, overall demand for food and energy will increase, which both require a lot of water to produce. Agriculture is the biggest water user by far at 71 percent worldwide. “We have to be prepared for the security challenges that will arise from this,” Adeel said.


Saudi Arabia’s Solar-Powered Desalination Plant to Begin Operations in 2013
Saudi Arabia expects to start its first solar-powered sea water desalination plant by 2013, said Mohammed Alsuwaiyel, president of King Abdullah City for Science and Technology (KACST) in recent remarks at a conference in Yanbu, Saudi Arabia. The plant in al-Khafji, near the Saudi border with Kuwait, will be the world’s largest of its kind. The plant will produce 30,000 cubic meters of water for the 100,000 people living in al-Khafji, according to data from KACST.
Desalination technologies are crucial in the Gulf region

Desalination is now the main provider of freshwater in the Gulf region, but the technology is still quite costly.

Abu Dhabi and other UAE regions have begun to seriously consider waste water recycling and other treatment alternatives to desalination as a way of meeting domestic water needs. They are also looking to reduce the associated costs of desalination.

Incorporating solar may provide some answers. Abu Dhabi’s Environment Agency is testing a new solar energy desalination system that is much more environmentally friendly, as well as less costly, than conventional desalination plants. The process is said to be a “zero-carbon process which helps reduce cost of water treatment, especially in desert areas where dust and high temperatures impair the efficiency of solar panels used in the existing desalination system.”

For more information on the AquaTerra Fund, please visit
We regularly gather information from the following reputable sources, including but not limited to: Bloomberg New Energy Finance Financial Times Energy News Green. – The New York Times New Energy World Network Scientific American U.S. Energy Information Administration (EIA) The Wall Street Journal Streetwise Reports: The Energy Report Thomson Reuters Climate Change Business Journal Commodity Futures Trading Commission

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