Oil and Gas and the Economy

Texas’ biggest industry, oil and gas is growing at a phenomenal pace, and the entire state economy is benefiting. With multipliers among the highest of any type of business, when the energy sector is surging as it is now, it’s generating a high level of other business activity for companies across the economy. In addition, oil and gas jobs generally pay well and there are royalties involved, so consumer-oriented impacts are high. Petroleum products are also top export categories.

The Permian Basin is one of the most prolific oil producing regions in the world. It’s already one of the top producers globally, and production levels are likely to double over a period of about five years (they are already 50% higher than the all-time record that was set in 2016, which broke a record from 1973). The US Energy Information Administration expects Permian oil production to continue to rise from about 3.3 million barrels per day in 2018 to 3.9 million in 2019 even with some challenges from pipeline capacity constraints. IHS Markit projects oil production in the Permian could reach 5.4 million barrels per day in 2023 which would be more than double the 2017 levels of production and make it larger than any OPEC country except Saudi Arabia. Other fields across the state also add to the total and generate substantial benefits of their own.

The combination of technological change, rising global energy demand, major new discoveries in the Permian Basin region, dramatic cost reductions, and expectations of a favorable market environment and infrastructure development have combined to create a new paradigm in which sustained drilling and extraction programs are beginning to replace the “boom and bust” pattern that has persisted for at least the past century. This fundamental change has many implications for the industry and the regions with significant reserves, including Texas.

Even with these shifts, the energy sector will likely remain somewhat cyclical, but the Permian Basin is beyond amazing, and major oil companies have indicated plans to be in the area on a consistent basis for decades. Moreover, most analysts think current levels of activity are sustainable at prices above $50 per barrel, down from about $70 just a few years ago (and the cost trend continues downward).

There are a lot of good things happening in the Texas economy. Industries across the spectrum are growing, including manufacturing, technology, and others with the potential to generate notable future jobs and opportunities. The state leads the way in major corporate locations and expansions and while there is always room for improvement and challenges will arise, things are looking good. With continued strength in oil and gas, they’re looking very good indeed.