Oil, gas about a third of economy
The claim: “Oil and gas is 35 percent of the state economy, making the (Texas Railroad Commission’s) budget an important priority.” — Texas Railroad Commission Chair Christi Craddick, a Republican from Austin.
Craddick made the statement in a tweet earlier this month as she advocated for prioritization of the Railroad Commission — the state’s oil and gas regulatory agency — in next year’s state budget.
PolitiFact rating: Mostly True. The oil and gas industry took up as much as 40 percent of the state economy during the last decade’s fracking boom yet shrunk to 30 percent before the pandemic shocked the world economy.
Discussion
Texas’ oil and gas sector took a tumble in 2020 when the coronavirus pandemic was compounded by a Saudi ArabiaRussia price war that further devastated the global oil market.
Texas oil and gas producers have suffered the double blow of COVID-19 and the global price shock amid an era when the industry is facing structural contraction. Oil and gas has long been a primary driver of Texas’ prosperity, but does its share of the state economy remain at 35 percent even after a historically tumultuous year?
Determining the oil and gas industry’s share of the state economy “is a hard number to pin down,” said Jesse Thompson, senior business economist at the Federal Reserve Bank of Dallas.
There’s a multitude of ways an industry’s economic impact can be measured, Thompson said. Impact could be an industry’s share of a state’s gross state product, or the number of jobs it creates, or the amount of income it generates, or some combination of the three.
Direct impacts are the most straightforward measurement. According to the federal Bureau of Economic Analysis, the oil and gas sector directly covered around 15 percent of the Texas gross state product between 2019 and early 2020. That share fell to around 14.2 percent as the coronavirus swept the globe and
forced the industry to shed jobs and shut down drilling rigs in the second quarter of 2020, the latest period for which economic data is available.
According to Craddick’s spokesperson, the 35 percent figure Craddick cited represents the oil and gas sector’s direct impacts to the gross state product combined with its indirect and induced impacts. The 35 percent figure is also a projection for how the year will end after the industry’s bounce back from its April nadir.
“We have seen improvements throughout the remainder of the year, so the number is definitely going to land somewhere between 30 percent and 40 percent, so 35 percent was an easy middle point,” said Mia Hutchens, Craddick’s director of public affairs.
Certain indicators are already showing the sector’s recovery. The Texas rig count has shown a slight uptick since October corresponding with an improving global demand for oil and natural gas. After nearly 60,000 oil workers lost their jobs between February and August, around 2,100 jobs were added in September and October, according to the Texas Independent Producers and Royalty Owners Association. The association also projects that, by year’s end, the industry will be supporting at least 300,000 direct jobs and 2.1 million indirect jobs in Texas.
The 35 percent projection was calculated using data from the Texas comptroller’s office, the Texas Pipeline Association and the Texas Oil and Gas Association, the sector’s largest industry group in the state, according to Hutchens.
At the beginning of 2020, before COVID-19 had reached all corners of the globe, the Texas Oil and Gas Association pegged the industry’s share of Texas’ gross state product at 30.5 percent. According to a spokesperson, the trade group determined that number by finding the sum of the industry’s direct contributions to Texas’ gross state product — $223.1 billion, or about 13.5 percent of the state economy.
Then, to capture the industry’s indirect and induced “ripple” effects, the Oil and Gas Association multiplied the industry’s direct gross state product by 2.3, meaning that every dollar spent in the industry was modeled to generate $2.30 in spinoff economic activity. This multiplier produces an estimated $502.6 billion of economic impact in the state, or 30.5 percent of the private sector’s gross state product.
To Karr Ingham, a petroleum economist with the Texas Alliance of Energy Producers, the association’s method of calculation using a multiplier of 2.3 is “pretty close to correct.”
“That’s not high. If anything that could be a touch low,” Ingham said. “I’ve heard commissioners in the past and other political types and other industry cheerleaders say the multiplier for oil and gas is 7.”
Craddick’s 35 percent figure reflects the commissioner’s belief that the industry will begin next year stronger than it began 2020. Although several indicators point to an upward trajectory of the industry — such as oil prices, jobs, and rig count — Ingham said the 35 percent projection may be slightly optimistic.
“It’s a little hard to take issue with (Craddick’s number) just because it’s guesswork,” Ingham said.