Houston feels pain of oil bust, virus
Oil industry accounts for one third of the city’s economy
HOUSTON — When you’re known as the energy capital of the world, oil busts are nothing new. But Houston now finds itself in uncharted territory — grappling with an oil downturn in the middle of a pandemic.
Like in other cities, the coronavirus has shut down much of Houston’s economic activity, slashing thousands of jobs as well as sales tax revenues. Mayor Sylvester Turner expects a city budget deficit of about $200 million, the worst in the history of the fourth largest U.S. city.
At the same time, the price of oil plunged as demand plummeted due to the worldwide lockdown to stop the virus’ spread. For some companies in the local oil sector — which accounts for a third of Houston’s economy — bankruptcy is all but inevitable.
This one-two punch from COVID-19 and oil prices will make it much harder for Houston to recover from a looming recession, according to economists.
“Tough times have been seen many, many times before and these are going to be particularly tough times,” said Bill Gilmer, director of the Institute for Regional Forecasting at the University of Houston.
Those tough times will also be felt by other local businesses, including restaurants, which are boosted by the energy industry.
“You don’t think a cake maker is going to care about the price of oil. In Houston, they do,” said Jon Rosenthal, who was laid off from his energy sector job during the 2015-16 downturn, when his favorite bakery closed.
The dramatic drop in oil prices in the wake of COVID-19 has resulted in oil wells being shut down, companies slashing production and exploration budgets and new projects being redesigned or shelved.
Texas produces more than 40% of the nation’s crude oil. Very little drilling takes place in the Houston area, which has more than 237,000 energy workers. The city is instead the hub for the executive and technical talent, including engineers, that manage worldwide drilling projects.
The beating heart of Houston’s oil economy is the Energy Corridor, a white-collar hub of gleaming office towers along Interstate 10 and filled with heavyweights including ConocoPhillips and BP.
While the oil industry was already facing problems before the pandemic, including a credit crunch, Jose Sagaseta thought his job of eight years with an oilfield services company in Houston was safe.
“You never expect you’re going to be the one on those lists,” said Sagaseta, 45, who was laid off in mid-April. “Companies are trying to hunker down … and going to some survival mode.”