Whether this number is justified or overblown is something experts can argue long into the night. But since October 2002, the price of oil is up 333% while global demand has risen "only" 9%, from 78 million barrels a day to 86 million now, notes veteran analyst John Olson.

"This [situation] is going to get worse unless we get hit by a blunt object [to reduce oil demand]."

Olson was one of several analysts and financial planners who spoke about investing in a peak-oil world at the ASPO-USA's World Oil Conference in Houston that was under way at press time. All agreed: traditional energy investing will be hugely rewarding in the near term as commodity prices rise. And, they said suppliers to alternative-energy firms make the best investments in that space-e.g., the companies that make blades and bearings for windmills, or fuel-efficient locomotive engines.

"You need to think of energy as an asset class in and of itself-it warrants more than just being a part of your stock portfolio," said Seattle financial planner Jim Hansen, who now lives "off the grid."

He juxtaposed that now-iconic photo of BP's huge Thunder Horse platform nearly sinking in the Gulf of Mexico, with the ski slope in a Dubai mall. Both are symbols of how tight oil supply is, how costly it is to find, and how high the reward is if you do find it.

The peak-oil believers think $86 is a taste of more to come. For governments around the world, $86 is a number to grab through higher royalties, increased shares of government "take" in contracts, or outright expropriation.

Democratic politicians see $86 oil as almost holy justification for their anti-hydrocarbon stance.

"If you're not at the table, then you're on the menu," warns Denise Bode, new chief executive of the American Clean Skies Foundation. Bode, a former IPAA president and Oklahoma Corporation Commissioner, just moved back to Washington to join the foundation, which will ensure that when all the various energy alternatives are considered, natural gas is part of the discussion.

Tracking the price of crude oil in cash markets against the U.S. dollar index from May to October 12, 2007, creates an exact mirror image. Every bump up in crude offsets a similar slide down in the dollar. That dollar has less buying power than ever before.

The world's investors, whether individuals, hedge funds or government funds worth trillions, are loudly telling us they want to buy oil, gold and other commodities-but they do not want dollars.

What a great time to be in charge of deploying capital from the Middle East. Armed with more money than since 1980, and taking advantage of a weak dollar, Western assets look tantalizing. Middle East money now owns part of the Alberta oil sands and the Nasdaq and London stock exchanges. It owns the Ritz Carlton in Paris, and pricey real estate in London has been acquired recently by the petrodollars.

People are skiing in downtown Dubai. But for how long?

"They just don't get it," says Hansen. He and other speakers emphasized that the peak-oil challenge is as much about our behavior as it is about oil. This can't continue.

The price to pay to play is going up, in more ways than one.

We know that from recent Gulf of Mexico M&A deals. Now the U.S. government has held the most competitive offshore lease sale in more than 20 years.

"The price of U.S. Gulf of Mexico leases finally appears to have overtaken that of other deepwater provinces, such as Brazil and Africa," says analyst Matthew Jurecky in a Wood Mackenzie report, "Deep Pockets for Deepwater in GoM Sale 205."

On a per-acre basis, an average bid of $954 for a deepwater Gulf block tops all recent sales globally, most notably the 2006 deepwater round in Angola with an average of $758 per acre, according to the report.

Spending topped $2.9 billion, with the average winning deepwater bid up 260% from last year. Jurecky adds, "Bids that historically would have been competitive were mediocre by the new standards set at this year's sale."

One example is Shell's whopping $90-million bid for a single block.

He notes that several companies actually bid on blocks they previously held, but the leases had expired. "Companies are now forced to pay a premium for blocks they once leased cheaply as trends become more widely understood. Some companies paid over US$30 million to re-lease a block."



In these booming times, smart planning and top-notch execution are still keys to success. So, be sure to go to oilandgasinvestor.com, to nominate companies, fields and individuals for our annual Oil and Gas Investor Excellence Awards. The deadline for entries is Dec. 3. The winners will be announced in the February issue of Oil and Gas Investor, and their stories will be profiled in that and subsequent issues. We look forward to sharing their wisdom with you.

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