Boom or bust? What hap­pens in Vi­enna mat­ters

Oil prices and Hous­ton’s eco­nomic health hang in bal­ance of crit­i­cal OPEC meet­ing

Houston Chronicle Sunday - - BUSINESS - By John C. Roper STAFF WRITER

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.

James Durbin

Idled rigs stacked in Mid­land dur­ing the last oil bust.

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