Big Oil’s rebound energizes Houston

As production, crude prices rise, market expands

Houston’s oil and gas industry is set to return as the driver of the Houston economy, propelled by higher prices, increased production and expanding international markets, according to a new economic forecast.

After years of weighing on economic growth, the energy sector is regaining its strength, providing a lift to the region, just as the petrochemical construction boom, the Hurricane Harvey recovery and other activities that supported the local economy in the aftermath of the recent oil bust begin to fade, according to the forecast.

How far and fast Houston’s economy grows in the next few years will largely depend on the price of oil, said the forecaster, the University of Houston economist, Bill Gilmer.

Gilmer, projected that if

oil prices stay high, the metropolitan area will add as many as 55,000 jobs this year, down slightly from 63,000 gained in 2017, when billions of dollars in insurance payments and federal aid poured into the region to rebuild from Hurricane Harvey. Without that one-time boost, Gilmer estimated, the region likely would have gained only fewer than half those jobs last year.

“It’s time to reset the clock on Houston’s growth,” said Gilmer, director of UH’s Institute for Regional Forecasting.

Gilmer presented his semi-annual forecast Thursday at a downtown luncheon that attracted some 700 business professionals. Houston’s economy, Gilmer told bankers, real estate developers and property brokers, proved remarkably resilient during the oil bust that began in mid-2014. Houston lost some 75,000 oil related jobs in the next two years, but still managed to skirt a recession, unlike the bust of the 1980s, which spiraled into real estate crash, banking crisis and a wrenching economic downturn.

This time around, Houston economy was helped by a strong national economy, the expansion of the petrochemical industry which invested some $50 billion in plant construction, and the large and stable health car sector. Still, overall employment growth slowed to crawl as energy companies slashed billions of dollars in spending and tens of thousands of jobs.

But now, things are looking up for the oil and gas industry, which is again adding jobs, albeit slowly. U.S. crude prices have recently risen above $70 a barrel and production has hit a record high, now approaching 11 million barrels a day. Crude exports have also hit record levels of about 2 million barrels a day — with much of the oil coming from Texas shale fields and shipping through Gulf Coast ports.

Karr Ingham, petroleum economist for the Texas Alliance of Energy Producers in Amarillo, an oil and gas trade group, said rising prices — recently driven by U.S. withdrawal from the Iranian nuclear deal and flaring tensions in the Middle East — has stimulated a new round of expansion in the oil patch that is, to a degree, spurring new hiring. Oil settled at $71.49 a barrel in New York Thursday.

“I do believe Houston will get somewhat of a shot in the arm as a result of that,” he said.

Houston is also getting a lift from the national economic economic expansion, soon to enter its ninth year. The U.S. unemployment rate last month slipped to 3.9 percent, the lowest in nearly two decades. Job growth is robust, inflation is low, and consumer confidence is high.

When the U.S. economy is strong, Houston benefits because it boosts manufacturing of products such as refrigerators and air conditioning systems, which are made locally, said Ross Harvison, who surveys about 60 companies each month on behalf of the Institute for Supply Management-Houston to gauge local business conditions.. A strong national economy also boosts local companies, such as Waste Management and Sysco, that sell goods and services into a national market, and firms that transport the goods that come into the Port of Houston.

“The U.S. economy held us up during the downturn,” said Harvison, and is now helping to continue the expansion that began when oil prices started to recover.

But, noted Gilmer, Houston economy still has weak spots. Hurricane Harvey provided a temporary fix for the over-built apartment market, which suffered from high vacancy rates and low rents. Vacancy rates are down from the 15 percent reached in 2016, but they remain at nearly 12 percent.

The oil bust dealt a blow to the office market where the current vacancy rate for “Class A,” the industry term for the best buildings, is 21 percent. It’s especially bleak in the energy corridor along I-10 and Greenspoint since Exxon Mobil moved its local campus to The Woodlands.

But the overall office market should improve. No new office space is scheduled to come on line, allowing vacant space to be absorbed as the economy grows. Gilmer predicts that office vacancy rates should fall in three years to 12 to 13 percent.