The long-dreaded impact of high oil and gas prices on the U.S. economy is starting to show in a number of ways. New cracks have appeared in energy demand and Congress is rattling its legislative sword. The president is asking people to drive less and conserve more. Caulk is the hot new product. SUV and home sales are slowing; consumer spending is wobbling; holiday sales expectations have been trimmed. Manufacturers are starting to react. Proctor & Gamble said recently it is trying to reduce its use of crude oil as an ingredient for making surfactants-the chemicals that make laundry soap and shampoo actually clean what they touch-by using more palm oil instead. CF Industries said last month that among other tactics, including hedging natural gas prices, it will reduce the operating rate at its nitrogen fertilizer complex in Donaldsonville, Louisiana, by 50% through the end of the year, to save on its gas bill. "The effect of sharply higher energy prices and fertilizer costs on farmers' plans for next spring cannot be determined at this time," chief executive Stephen R. Wilson warned. But David Wyss, the chief economist of Standard & Poor's, thinks the U.S. economy can handle the price shock better now than 35 years ago. "Americans spend a much smaller share of their income on energy than in the past," he said in an October report. "Per capita, the average American uses about as much energy in Btus as in 1970, but real incomes have more than doubled since then." Maybe so, but you cannot mollify homeowners who fear their heating bills will double this winter. And there is a greater fear-that spot shortages of electricity, natural gas or fuel oil could occur. Energy supply solutions abound, but a fight is brewing between the states and the federal government. Who has the right to approve or block refinery siting and offshore drilling? The Energy Act of 2005 already has declared the Federal Energy Regulatory Commission (FERC) the sole entity to approve liquefied natural gas (LNG) plant siting, over the objections of state and local leaders. A bill that passed the House by two votes would also give the federal government the right to decide where a new refinery may be built, overruling local authorities. The Senate has yet to act. This is a thorny problem. Locals-and the free market-should take precedence over federal mandates. Yet the problem is, locals never allow the kind of energy-infrastructure projects the country needs-except along the Gulf Coast, whose energy intensity and vulnerability have now been exposed to all. For the energy industry, it could be a long winter, as legislators have proposed five different versions of a windfall profits tax on energy company profits. "The industry doesn't have its message ready and needs to get its act together," a lobbyist for a major told me recently. But it's going to be impossible to explain why E&P companies are spending huge profits on stock buybacks, dividends or corporate acquisitions rather than on drilling-or building a refinery. Buybacks by the world's six super-majors could go up an estimated 63% this year to $40 billion, according to a John S. Herold Inc. report. The super-independents' stock repurchases could triple to $13 billion from 2004 levels. The majors' cash on hand has soared three-fold since 2000 to $75 billion now, Herold reports, and the big indies' cash reserves tripled in 2004 after going up 60% in 2003. In September, U.S. oil production fell below 5 million barrels a day, its lowest level since 1950. Meanwhile, the Energy Information Administration said at press time that it does not expect Gulf of Mexico oil production to return to normal until the end of March. The fight for control over increasingly precious oil and gas assets is heating up elsewhere too, not just in Congress and state capitals. Russia, Nigeria and Venezuela have reasserted domination of their hydrocarbons this year. Kazakhstan wants its oil company, KazMunaigaz, to control the assets of Petrokazakhstan, which agreed to be acquired by China National Petroleum Corp., for $4.2 billion. CNPC and KazMunaigaz are building an export pipeline that links the two countries. Now Lukoil, a 50-50 partner with PetroKaz in the Kumkol Field, is trying to block the deal. In these challenging times, it's more important than ever to share examples of E&P and financial success and creativity. So, be sure to submit your nominations for the third annual Oil and Gas Investor Excellence Awards. Last year's winners included Plains E&P, Devon Energy, Continental Resources and the great Wolverine Gas & Oil discovery in Utah. Either e-mail me your nominations or go to our revamped website, oilandgasinvestor.com, for nomination forms and a list of the 2004 winners. We urge your participation-nominate your own company or any other you admire.