Research News: "Houston Still an Energy Town" -Dallas Fed

Speak to any Houstonian about the threat of climate change to the city and you'll get a similar response: Houston's economy isn't based on oil like it once was.  It's diversified.  We have the medical center, we have many Fortune 500 companies, NASA, the shipchannel, as well as manufacturing and retail.  The city survived the oil price slump of the 1980s and came out better for it.

But was it enough?

Maybe not, according to the Dallas Fed.  Looking at employment change percentages, author Jesse Thompson points to the areas of most significant decline during the pandemic: oil/gas, construction, manufacturing, and information services fared the worst.  That oil and gas (and support industries) still make up 1/3rd of employment in the Houston metro area, and that it alone accounts for nearly that percent in wages is evidence to it's continued importance.

Further, the charts he presents show how many of these lost jobs in the pandemic (1/5th of all those in oil and gas) have not recovered despite oil price rises.  This is consistent with anemic growth in the oil rig count.  

This slow response to rising prices, he explains, may be due to poor performance in the industry for the past decade.  Compare -50% gains in oil and gas exploration and production vs +209% in the stock market as a whole between 2013 and 2021.  Or $300bn in energy debt subject to bankruptcy proceedings between 2015 and 2021.  It could also be due to higher input costs for drilling oil (e.g., steel, sand, machinery, labor, etc.).  Regardless, the trend of slow growth amid rising demand and profits continued.  When Russia invaded Ukraine and Europeans looked to access natural gas away from Russian pipelines, Houston benefited, as 3/4ths of Texas coast exports are chemicals, oil, or natural gas.  

Therefore, the pivot of other nations to natural gas as a less polluting energy source, as opposed to oil or coal, is a boon to Houston and Texas as a whole.  Non-energy related jobs in Houston track closely to nationwide employment numbers, so it is the energy sector that continues to set Houston apart.  It remains to be seen how this continued unique aspect of Houston will impact the city when there is a big bump in supply or another big drop in demand.