An all-out economic boom has exploded in Texas, the result of a potent mixture of the energy industry’s fracking extravaganza, population growth, and a rekindling of manufacturing.
The report card of Texas economic achievement is hard to beat:
- Houston led the nation in housing starts in 2013 with 28,339, according to the Metrostudy housing research firm. Dallas was second, and Austin and San Antonio also were in the national top ten.
- The state’s unemployment rate of 5.7 percent in February was significantly lower than the 6.7 national rate, the U.S. Bureau of Labor Statistics (BLS) reported.
- Austin was the national leader in metropolitan population gain on a percentage basis, climbing 2.6 percent from 2012 to 2013, according to the U.S. Census Bureau. Houston added more people to its population than any other U.S. city in terms of pure numbers, with 137,692 new Houstonians for the same period.
- Over the past four years, Texas has added more than 1.2 million jobs, an impressive rebound following the Great Recession.
“Texas is clearly outperforming the U.S. economy. We came out of the recession early,” says economist Jeanette Rice of Rice Consulting, based in Fort Worth. “Texas is expanding, of course, because of energy. It’s not just because of jobs in Houston, but it’s also creating jobs in the Dallas/Fort Worth area. Shale is one of the big drivers for all of this state.”
Shale is a dense geologic formation that can be “fracked,” or split open by hydraulic fracturing—high-pressure injection of water, sand, and chemicals. With innovations in fracking and horizontal drilling, the underground shale is now being tapped for large qualities of oil and natural gas in the Eagle Ford Shale formation near San Antonio, the Barnett Shale around Fort Worth, and the Haynesville Shale in east Texas. Fracking has also been a game changer in the hydrocarbon-rich Permian Basin in far west Texas.
Domestic oil drilling hit an all-time high in April, according to Baker Hughes Inc., which began tracking rig counts in 1944. Another industry booster is the price of oil, which has been hovering in the range of $90 to $100 per barrel for several years, double its price during the recession. After 2009, with the recession fading, hydraulic fracturing kicked in and changed Texas.
“Fracking and looking for domestic oil just took off,” says Clark Martinson, general manager of the Energy Corridor District, a quasi-govermental agency created by the Texas Legislature to implement public safety, streetscape, and business development initiatives in suburban west Houston. “They had to ramp up employment in all these companies, whether it was trucking, drilling, or exploration. That has meant huge growth.”
How huge? Martinson says 30 office buildings are under development in the Energy Corridor, where occupancy rates for Class A office buildings have been around 99 percent for the past two years.
ExxonMobil, based in Irving, Texas, did its part, too. The company is relocating about 2,000 employees to Houston primarily from Fairfax County, Virginia, and Akron, Ohio, and building a Texas-sized corporate campus with 20 buildings containing 3 million square feet (279,000 sq m) of space on a 385-acre (156 ha) site on the north side of Houston.
The Texas story is not just an energy story, though.
Austin in central Texas has staged its own boom on the back of high-tech growth, as well as its low cost of living and the lifestyle appeal of the Texas Hill Country. The metro area’s 2.6 percent population gain gives it 1.9 million residents.
With the high-tech legacy of Michael Dell, who started Dell Computer in his University of Texas dorm room, Austin has been a technology draw for years. Facebook, eBay, Samsung and many other tech firms have located offices there because operating and housing costs are lower than those in Silicon Valley
Dallas/Fort Worth is also gaining population, attracting new residents with jobs in insurance and financial services, as well as the region’s appeal as a distribution hub. Dallas’s future in the warehouse sector should also be bright as such e-commerce companies as Amazon select the city for distribution facilities. The Dallas/Fort Worth metro area added 108,000 residents in 2013, giving it 6.8 million people and securing its position as the nation’s fourth-largest metro area behind New York City, Los Angeles, and Chicago, and putting it one place ahead of Houston.
Dallas’s strong job growth has been highlighted by announcements of large development projects, including last summer’s groundbreaking for State Farm Insurance’s 1.5 million-square-foot (139,000 sq m) campus in suburban Richardson.
Among the nation’s small cities, Odessa and Midland in west Texas—each with fewer than 200,000 people—rank second and third in population growth on a percentage basis after the Villages, Florida. Odessa and Midland thrive in the oil-rich Permian Basin, which is also having a fracking-based revival. Apartments in Permian Basin cities and towns are 97 percent occupied, according to the CBRE Group, and several industrial and commercial properties are under construction.
The Texas boom escorted some challenges into the state. With such population growth, the need is great for infrastructure expansion, transportation improvement, and increased water supply, says Rice. The mayors of Houston, Dallas, and Fort Worth voiced support for a high-speed bullet train linking the state’s two largest metro areas, but that relief would be years away. The need for solutions to handle the massive population growth and provide Texans with viable transit, education, and housing infrastructure will challenge the state’s leadership in the years ahead.
The energy-based hiring boom appears to be nearing a peak, and the sector’s high-growth pattern cannot be sustained forever. Some energy firms seeking portfolio diversification are shifting their budgets from fracking onshore to pursue larger returns from offshore oil and gas exploration, says Michelle Michot Foss, chief energy economist at the University of Texas Center for Energy Economics.
“There is a lot of oil and gas left to get, but oil prices have to remain attractive and natural gas has to appreciate,” Foss says. The Texas bubble could deflate quickly with a big drop in oil prices. Such a drop is not expected—but black swans are always a surprise.
For now, the low prices of abundant natural gas, much of it produced from Texas shale, is spawning dramatic growth in and the expansion of chemical plants along the Texas coast from Beaumont to Brownsville. Twenty-one chemical companies are expanding or building new ethane cracker plants, which use a component of natural gas to produce ethylene, a vital ingredient in production of plastics.
One of the first of the projects broke ground in early April: a $6 billion ethane cracker in Baytown, developed by Texas-based Chevron Phillips Chemical. The plant, with 350 miles (560 km) of piping and 140,000 tons (127,000 tonnes) of concrete, is expected to be followed by other massive chemical plants by Exxon Mobil, Dow Chemical, and other industry heavyweights.
Dow is spending $4 billion for a chemical plant expansion in Freeport. In the nearby coastal town of Lake Jackson, Dow is also constructing the 900,000-square-foot (84,000 sq m) Texas Innovation Center, a research and development facility that will employ 2,000 people.
The energy boom has created big demand for skilled blue-collar workers at factories for machinery and fabricated metal products in Houston, where some plants run shifts around the clock and working overtime has been commonplace. According to the BLS, manufacturing workers in Houston work an average of 49.1 hours per week, compared with the national average of 41.7 hours.
At the Port of Houston, steel imports are up sharply as the energy exploration and refining industry hurries to produce drill bits, pumps, and machinery, says Bill Hensel, manager of corporate communications for the Port of Houston Authority.
And with its massive production of raw plastic, Houston recently surpassed New York City as the nation’s leading port for exports, according to the International Trade Commission.
A recent study commissioned by the Port of Houston indicates that at least $35 billion, and perhaps as much as $50 billion, will be spent for waterfront chemical plants and other industrial facilities by 2015, Hensel says. “It’s huge, the amount of investment going into the Houston Ship Channel right now,” he says.
Panama Canal Widening
Also holding promise is the ongoing widening of the Panama Canal, scheduled for completion in 2016, which will allow larger vessels—and more containers and cargo from Asia—to come in and out of Houston’s port. “We expect to see a 15 percent uptick when it first opens in the amount of cargo coming across our docks,” Hensel says.
To the west, the Eagle Ford Shale, a petroleum-rich 400-mile (640 km) geologic formation, has generated thousands of jobs, many of them in rural areas south of San Antonio. With innovations in fracking and horizontal drilling, the Eagle Ford has exploded with new drilling activity in the past five years.
Drilling permits for work in the Eagle Ford Shale jumped from only 94 issued in 2009 to 4,416 in 2013, according to the Texas Railroad Commission, which regulates the oil and gas industry. Oil production statistics are impressive as well: Eagle Ford output skyrocketed from 843 barrels per day in 2009 to 764,438 barrels daily in January 2014.
The drilling boom injected a charge into housing demand in small Texas towns like Cotulla, Cuero, and Dilley. Limited-service hotels in Eagle Ford communities are occupied 100 percent of the time, and vacancies that do arise typically are filled within minutes. Open fields have been transformed into parks for recreational vehicles that are now semi-permanent homes for oilfield workers. Barracks-like “man camps” have been constructed.
As one of the most active shale plays in the world, the Eagle Ford has strained infrastructure as 24/7 truck traffic mauls tiny farm-to-market roads originally built to carry the occasional farmer’s pickup truck.
The spillover effect from the Eagle Ford has invigorated San Antonio, located 60 miles (97 km) to the north, says Mario Hernandez, president of the San Antonio Economic Development Foundation. “The Eagle Ford has had a tremendous impact on San Antonio since 2010,” he says. “Just in southern Bexar County we’ve added over 5,000 jobs.”
The big four of oil field service companies—Baker Hughes, Halliburton, Schlumberger, and Weatherford International—have established large facilities in south San Antonio, each employing more than 400 people, Hernandez says.
A number of large railroad yards have been constructed as San Antonio has become a hub for shipping pipe and sand used in hydraulic fracturing. Rail openings so far this year include the 400-acre (160 ha) Alamo Junction Rail Park and the 300-acre (120 ha) Southton Rail Yard.
San Antonio has seen an uptick in manufacturing jobs, building on its solid employment base of health care, military, and insurance jobs. Maruchan, which has its American headquarters in Irvine, California, just opened a $350 million ramen noodle factory that will employ 600 people and export a significant portion of its product to Mexico. San Antonio–based Mission Solar Energy is building a $100 million plant on the city’s southeast side that will produce solar panels.
Although storm clouds can appear over the Texas economy at any moment, for now the economic outlook—in both north and south Texas—seems to be among the best in the nation.
“We are a business-friendly state. We are a net exporter of goods, not a net importer, which means we are selling a lot of stuff that people are making here,” says Ted C. Jones, chief economist of Houston-based Stewart Information Services. “Texas is doing phenomenally well, and it’s not short term. It’s a long-term phenomenon.”
Ralph Bivins is a Houston-based freelance writer and editor of Realty News Report.