Offering a Reasoned Perspective

The Impact on Texas from the Decline in Oil Prices

Is Texas going to be a less robust economy in 2015 than 2014? Of course it is; however, we should keep the slowdown in the creation of new jobs and economic activity in Texas in perspective, which is the purpose of the commentary that follows.

The residents of Texas are coming off a boom. Quoting Keith Phillips, a senior economist with the Federal Reserve of Dallas, from written comments he made the week of January 5, 2015:

"While last year was pretty strong, during the recovery from the 2008-2009 recession, Texas had stronger growth than the nation every year."

Now, Texas is preparing to see the effects of the decline in oil prices. Per Phillips, “no one is panicking because the economy is helped by Texas’ steady population growth (about 1,000 people per day are moving into the state) and its stronger than expected real estate market.”

A few years ago, Texas avoided the housing crush experienced by other states during the recession, and the state has been a primary engine in creating the economic growth that the U.S. has experienced. Now, the grow rate will decline and Texas will see its job growth drop, cutting about 125,000 jobs across a variety of sectors.

Still, we expect net job growth to continue. Phillips’ report predicts a decrease from 3.6% growth in 2014 to approximately 2% to 2 ½% growth in 2015. Looking at this forecast in terms of jobs, Texas should create about 235,000 – 295,000 new jobs instead of the estimated 408,000 in 2014. (In November 2014, payrolls were up 447,900 from a year earlier, or 3.9%.)

This result will place Texas at the national average of about 2% job growth. Phillips believes that we will not repeat the collapse of the oil industry in the 1980s because our state’s economy is far more diversified. It just reduces job growth.

Pia Orrenius, a regional economist with the Dallas Fed, sees “the price bust washing through the Texas economy in both positive and negative ways.” For example, if one focuses on the Texas Gulf Coast and the Corpus Christi area specifically, a construction boom centered on petrochemical plants is well underway, which is creating more jobs. In turn, these plants and manufacturing in general will benefit from lower energy costs.

Alternatively, the drop in oil prices will hurt sectors—such as construction, transportation and business services—that have expanded to serve the oil industry, as well as consumer spending more broadly as workers lose their jobs.

Here Come the Jobs

The current development of new and expanding petrochemical plants in the Corpus area is very significant, as shown below. Construction jobs are already being filled. In each of the next three to four years, it is estimated that there will be 9,500 new construction workers employed.

  • voestalpine, an Austrian company is developing a plant for HBI (hot briquetted iron) and DRI (direct reduced iron). This production will be shipped to Austria for the production of raw steel. Completion of the construction is scheduled for December 2015. (1,000 construction  jobs) ($740 million)
  • Cheniere is constructing a liquefied natural gas (LNG) export terminal. 66% of the capacity has been contracted with Spain and Korea for the next 20 years. (1,800 construction jobs) ($12 billion)
  • Cheniere is also constructing a Crude Export Dock on a 500 acre site that was acquired in December 2014 for $50 million (600 construction workers by late summer, 250 permanent jobs on completion)
  • TPCO, in China, is developing a steel casing and pipe plant creating 2,000 construction jobs. ($1.4 billion)
  • OxyChem has started construction of a ethylene cracking plant and a propane export facility. ($1.3 billion, 1,700 construction jobs)
  • M&G Resins, an Italian company, has started construction on the world’s largest PET plant (Polyethylene terephthalate) (3,000 jobs during construction) ($800 million)

This $20 billion in construction of petrochemical plants by American and foreign companies has been largely overlooked. The resulting industrial infrastructure will be permanent and will create long-term jobs, utilizing the cheap natural gas from the Eagle Ford. One commentator has described this investment in Corpus Christi as the beginning of the re-industrialization of the United States.

Other companies in the area with major investments in plants include DuPont Fluoroproducts, Gulf Marine Fabricators, Lyondell Basell, Sherwin Alumina, Kiewit Offshore, the Port of Corpus Christi, Flint Hills (Koch Industries), Valero, and Citgo.

On The Horizon

  • Harbor Bridge replacement may start as early as late 2015. ($1 billion)
  • Spohn Memorial Shoreline Hospital redevelopment construction ($325 million)

Sources: Port Corpus Christi; Federal Reserve Bank of Dallas; Texas Workforce Commission; City of Ingleside, Texas