Economic Contrast: Texas vs. CA

In the last decade, Texas emerged as America’s new land of opportunity — if you will, America’s America. Since the start of the recession, the Lone Star State has been responsible for the majority of employment growth in the country. Between November  2007 and November 2014, the United States gained  a net 2.1 million jobs, with 1.2 million alone in Texas.

Yet with the recent steep drop in oil prices, the Texas economy faces extreme headwinds that could even spark something of a downturn. A repeat of the 1980s oil bust isn’t likely, says Comerica Bank economist Robert Dye, but he expects much slower growth, particularly for formerly red-hot Houston, an easing of home prices and, likely, a slowdown of in-migration.

Some blue state commentators might view Texas’ prospective decline as good news. Some, like Paul Krugman, have spent years arguing that the state’s success has little to do with its much-touted business-friendly climate of light regulation and low taxes, but rather, simply mass in-migration by people seeking cheaper housingSchadenfreude is palpable in the writings of progressive journalists like the Los Angeles Times’ Michael Hiltzik, who recently crowed that falling energy prices may finally “snuff out” the detested “Texas miracle.”

Such attitudes are short-sighted. It is unlikely that the American economy can sustain a healthy rate of growth without the kind of production-based strength that has powered Texas, as well as Ohio, North Dakota and Louisiana. De-industrializing states like California or New York may enjoy asset bubbles that benefit the wealthy and generate “knowledge workers” jobs for the well-educated (nationwide, professional and business services employment rose by 196,000 from October 2007 through October 2014), but they cannot do much to provide opportunities for the majority of the population.

By their nature, industries like manufacturing, energy, and housing have been primary creators of opportunities for the middle and working classes. Up until now, energy  has been a consistent job-gainer since the recession, adding  199,000 positions from October 2007 through October 2014, says Dan Hamilton, an economist at California Lutheran University. Manufacturing has not recovered all the jobs lost in the recession, but last year it added 170,000 new positions through October. Construction, another sector that was hard-hit in the recession, grew by 213,000 jobs last year through October. The recovery of these industries has been critical to reducing unemployment and bringing the first glimmer of hope to many, particularly in the long suffering Great Lakes.

Reducing the price of gas will not change the structure of the long-stagnant economies of the coastal states; job growth rates in these places have been meager for decades. Lower oil prices may help many families pay their bills in the short run. But there’s also pain in low prices for a country that was rapidly becoming an energy superpower, largely due to the efforts of Texans.

Already the decline in the energy economy, which supports almost 1.3 million manufacturing jobs, is hurting manufacturers of steel, construction materials and drilling equipment, such as Caterpillar. Separately, the strengthening of the dollar promises harder times ahead for exporters  in the industrial sector, and greater price competition from abroad, amid weakening overseas demand. Factory activity is slowing, though key indicators like the ISM PMI are still signaling that output is expanding.

Right now in Texas, of course, the pain is mounting in the energy sector. Growth seems certain to slow in places such as Houston, which Comerica’s Dye says is “ground zero in the down-draft.” Also vulnerable will be San Antonio, the major beneficiary of the nearby Eagle Ford shale. The impacts may be worst in West Texas oil patch towns like Midland, where energy is essentially the economy.

Yet there remain reasons for optimism. Cheaper energy prices will be a boon for the petrochemical and refining industries, which are thick on the ground around Houston and other parts of the Gulf Coast. The Houston area is not seeing anything like the madcap office and housing construction that occurred during the oil boom of the 1980s. Between 1982 and 1986 the metro area added 71 million square feet of office space; including what is now being built, the area has added just 28 million square feet since 2010. Compared to the 1980s, the residential market is also relatively tight, with relatively little speculative building.

The local and state economies have also become far more diversified. Houston is now the nation’s largest export hub. The city also is home to the Texas Medical Center, often described as the world’s largest. Dallas has become a major corporate hub and Austin is developing into a serious rival to Northern California’s tech sector.

Texas needs to increase this diversification given that oil prices could remain low for quite a while, and even drop further after their recent recovery.

This is not to deny that the state is facing hard times. Energy accounts for 411,372 jobs in Texas, about 3.2% of the statewide total, according to figures from Austin economist Brian Kelsey quoted in the Austin American-Statesman. If oil and gas industry earnings in Texas fall 20%, Kelsey estimates the state could lose half of those jobs and $13.5 billion in total earnings.

Low prices also could also devastate the state budget, which is heavily reliant on energy industry revenues. A reduction in state spending could have damaging consequences in a place that has tended to prefer low taxes to investing in critical infrastructure, and is already struggling to accommodate break-neck growth. The only good news here is that slower population growth might mitigate some of the turndown in spending, if it indeed occurs.

But in my mind, the biggest asset of Texas is Texans. Having spent a great deal a time there, the contrasts with my adopted home state of California are remarkable. No businessperson I spoke to in Houston or Dallas is even remotely contemplating a move elsewhere; Houstonians often brag about how they survived the ‘80s bust, wearing those hard times as a badge of honor.

To be sure, Texans can be obnoxiously arrogant about their state, and have a peculiar talent for a kind of braggadocio that drives other Americans a bit crazy. But they are also our greatest regional asset, the one big state where America remains America, if only more so.

This piece first appeared at Forbes.

Cross-posted at New Geography and Fox and Hounds Daily

Hydraulic Fracturing Major Contributor to CA’s Economic and Energy Future

The release of the draft EIR on Well Stimulation Operations marks an important milestone in meeting the deadlines set by Senate Bill 4. WSPA and our members are reviewing the details of the draft EIR and will continue to participate in workshops and public discussion regarding SB 4.

While we are pleased with the state’s process on implementing Senate Bill 4, it is important to note the draft EIR contemplates hypothetical development scenarios and provides a high level review.

To date, well stimulation in California has never been associated with any known adverse environmental impacts.

California has been a major producer of oil for well over 100 years.  We produce close to 600,000 barrels of oil per day, making us the third largest oil producing state in the nation, behind Texas and North Dakota. The vast majority of this production takes place in Kern County at the southern end of California’s San Joaquin Valley.

California also is home to significant shale oil resources, the largest of which is the Monterey Shale Formation that lies under large parts of the San Joaquin Valley and Southern California.

Hydraulic fracturing is a safe and proven energy production technique used to obtain oil and natural gas in areas where those energy supplies are trapped in tight rock and shale formations. Once a well has been subjected to hydraulic fracturing, crude oil or natural gas production may occur for years without additional fracturing.

Hydraulic fracturing operations occur over very short time periods, usually two to five days. Once an oil or natural gas well is drilled and properly lined with steel casing, fluids are pumped down to an isolated portion of the well at pressures high enough to cause tiny fractures in rock formations thousands of feet below the earth’s surface. These fractures allow oil and natural gas to flow more freely.

Hydraulic fracturing is a common well stimulation technique that has been linked to America’s dramatic domestic energy resurgence and economic recovery. Most notably, hydraulic fracturing is connected with natural gas production in parts of the Northeast and Intermountain West regions of the United States and with oil shale production in North Dakota and Texas. Hydraulic fracturing, a technology that has been used safely for more than 60 years, has played a critical part in helping the United States become energy independent.

Energy producers in California continue to fuel the West with affordable and efficient domestic energy and are major contributors to the state’s economy and energy future.

 is president of the Western States Petroleum Association

This article was originally published on Fox and Hounds Daily

CARTOON: Carbon Tax Grinch

Carbon Tax

Rick McKee, The Augusta Chronicle

Pipeline vs ChooChoo

Keystone pipeline

Steve Sack, The Minneapolis Star Tribune

Voters affirm CA fracking

 

 

Monterey ShaleAfter a lot of spending and acrimony, little has changed from California’s high-profile ballot measures to ban hydraulic fracturing, which injects a mix of substances into shale rock to free up oil for extraction.

In two counties with little to no oil drilling — San Benito and Mendocino — anti-fracking measures prevailed. San Benito’s Measure J passed with almost 57 percent of the vote. Mendocino’s Measure S prevailed with 67 percent voting in favor.

In Santa Barbara county, however, where drilling has been well established for over a century, fracking was protected. There, Measure P was defeated by 63 to 37 percent.

Santa Barbara, host to the oil industry since the late 19th century, had the most at stake. In 1969, the county suffered a dramatic offshore oil well disaster that triggered environmental legislation and galvanized the environmentalist movement. Although oil production held on, the industry had to invest substantial sums to fend off the fracking ban.

According to the San Francisco Chronicle, Chevron (headquartered in San Ramon) ponied up $2.6 million to sink the three measures, with Aera Energy adding $2.1 million and Occidental Petroleum another $2 million.

Supporters of the ban raised only a fraction of that.

Political geography

Geography dictated the focus of the fracking debate. The three counties lie on and around the Monterey Shale formation, which winds and twists its way through much of California. The Chronicle reported that “the federal government this year slashed its estimate of the amount of oil that can be squeezed from the shale using current technology,” although “drillers continue probing the formation, saying it could one day yield an economic bonanza for the state.”

As David Quast, California director of the pro-fracking organization Energy in Depth, indicated to Platts, “The U.S. Geological Survey in 1995 estimated that the Bakken Shale in North Dakota contained just 151 million barrels of recoverable oil, only to significantly boost that projection in 2008 to 3-4 billion barrels, and then again doubling it last year.”

Yet, as Platts reported, the U.S. Energy Information Administration announced in May that the Monterey Shale formation was very unlikely to yield a bonanza. Its estimate of “technically recoverable resources” plunged by 96 percent, “from 13.7 billion barrels in a 2012 study to 600 million barrels in a study” released in June.

California at a crossroads

With the split decision by voters in Santa Barbara, San Benito and Mendocino, the legal landscape surrounding fracking has become even more fractured. In Sacramento, as The Huffington Post reported, the state Senate “narrowly voted against a statewide fracking moratorium earlier this year,” while “Santa Cruz County and the city of Los Angeles already have similar bans in place.”

Meanwhile, Gov. Jerry Brown rankled environmentalists last year by supporting legislation that “would allow fracking to continue while lawmakers implemented a specific set of regulations and experts studied its potentially hazardous effects.”

In a further twist, California’s weather has clashed with changing consumer tastes to add a layer of complexity to the fracking debate. Since fracking requires the use of substantial amounts of water, the Golden State’s current drought has intensified the trade-offs associated with its use.

But energy exploration and development have not turned out to be the only culprit in the competition for scarce resources. The burgeoning market for almond milk has pushed the market for California-grown, water-intensive almonds so high the nuts now generate $4 billion a year in revenue, according to the Guardian. Monterey County, where water is also scarce, grows 44 percent of the world’s lettuce.

Kern County, meanwhile, has faced direct competition between Californians’ energy needs and dietary tastes. California’s oil-producing regions have been struggling to make do with current water supplies.

While half of America’s carrot crop and 40 percent of its pistachio crop come from Kern, the Guardian observed, the county’s oil fields are the sixth largest in the United States.

Water vs. oil: It’s an old California battle that will continue.

This article was originally published on CalWatchdog.com