Boom or bust? What happens in Vienna matters
Oil prices and Houston’s economic health hang in balance of critical OPEC meeting
OPEC and its allies, including Russia, meet in Vienna next Thursday to grapple with an all-too-familiar problem: whether to cut their production to prevent growing supplies of crude oil from becoming glut.
The last time the Organizaout tion of the Petroleum Exporting States face such a decision was in late 2014. The cartel then decided to just keep pumping crude, sending oil prices into freefall in what became the worst oil bust in a generation.
The Greater Houston Partnership has collected data on how the oil bust, which lasted for roughly two years, played in Houston. It’s a reminder of what’s at stake as producers again face the prospect of pumping too much oil.
Job losses were deep
At its peak in 2014, Houston’s energy sector employed about 300,000, according to the data. By the end of 2016, the number had plunged to just over 200,000.
The region lost more than 86,000 or nearly one in three energy-related jobs over those two years, and they’ve come back only slowly as oil prices recovered. Even today, near three years after prices hit bottom at $26 a barrel Feb. 2016, the region has just over 230,000 energy-related jobs.
Not just the number of jobs
Those job losses hit the Houston economy hard, not only because of the scale of the layoffs, but also because many of the job were high paying.
The premium jobs lost were in oilfield services, fabricated metal manufacturing, oilfield equipment manufacturing, oil and gas extraction, and architectural and engineering services. The lion’s share of these jobs paid $100,000 or more.
Those sectors paid about $37 billion in wages in 2014. In 2016, those same sectors paid $30 billion in wages, a drop of about $7 billion or nearly 20 percent. What that meant was far less of the consumer spending drives economic activity.
“The collapse in energy industry payrolls has taken a large chunk of purchasing power from the region,” said Patrick Jankowski, senior vice president of the Partnership who is also an economist. “That negatively impacts any consumer-oriented business: retail, housing, restaurants, bars and health care.”
Broader economy hit
Greater Houston’s economic output dropped nearly 7 percent, from $507 billion in 2014 to $472 billion in 2016, a decline of 7 percent, according to the Commerce Department.
In a normal year, Houston creates about 60,000 jobs. Data collected by the Greater Houston Partnership shows that in 2015 and 2016, Houston lost a total of 4,700 jobs.
The weakness in the labor market spilled into 2017. Through mid-August, the region add only about 2,400 job. Then Hurrican Harvery hit, leading to a surge in employment — mostly temporary — as homeowers and businesss repaired properties and replaced goods lost in the flood. By the end of the year, Houston gained a net 63,000 jobs..
Not coming back
The lower oil prices forced oil and gas companies to become more efficient, which basically means finding ways to product oil with fewer men and drilling rigs. For example, at the peak of the last cycle in 2014, companies were operating more than 1,900 rigs in the Untited States. Today, oil companies are producing about 2 million barrels a day more that in 2014, but with just over half the number of rigs — 1,079, according to the Houston oil field services company Baker Hughes.
Operators in shale plays have adopted the rigors of continual improvement techniques known as Lean Manufacturing to turn their oilfields into factories where multiple wells can be drilled from a single drilling pad and rigs can rapidly be moved to new locations. In less than a decade, E&P companies in North Dakota have reduced the gap between starting to drill one well and starting the next one from nearly three months to just over a week.
Bill Gilmer, an economist at the University of Houston, forecasts oil and gas-related jobs in part by analyzing rig counts and oil prices. Even if prices rose to $100 a barrel for a prolonged period, the region’s energy-related jobs would still fall short of the 2014 peak, climbing to about 275,000, Gilmer said.