Can the Boom Continue?

[BigFootsSocks]

Ok guys, for real though, does anyone beside astro believe the study meant that O&G workers are going to transfer to health care?

[samagon]

O&G isn't all about engineering. Just like health care isn't all about radiologists. There are lots of jobs that don't require a college education, just hard work.

[august948]

O&G isn't all about engineering. Just like health care isn't all about radiologists. There are lots of jobs that don't require a college education, just hard work.

 

And there are also a lot, perhaps a majority, of the jobs at big O&G firms that do have transferable skills.  IT, admin, HR, management, supply chain, procurement, etc.  Similarly, not all jobs in healthcare are direct patient contact jobs.  There are IT, admin, HR, management, procurement, etc jobs there as well.

 

[HalfFast]

Very interesting article from the Bauer Institute for Regional Forecasting on the outlook for Houston in 2016.

 

https://www.bauer.uh.edu/centers/irf/houston-updates.php

[samagon]

I do wonder why people aren't bringing up the positives of Iran's growth in the oil market? Oil field services companies. Why isn't anyone talking about the potential boon this is? Are they not wanting to get companies like Schlumberger involved, or are people just not talking about the positives, just the low price of oil. Everything I read says that Iran has to build their capacity to get it out of the ground. To me that means jobs for Houston. Are they not leveraging Houston based companies?

[Sunstar]

I've always liked the expression "never waste a good crisis." The downturn in O&G will force Houston's economy to once again undergo diversification, which is a good thing. I would like to see more manufacturing jobs that aren't tied specifically to O&G, similar to Toshiba International: http://www.toshiba.com/tic/meet-toshiba

 

With a highly skilled workforce, and lower overhead costs, the vacuum created by lower oil prices should be attractive to other industries looking to expand in the region. Ultimately, we need to lower our economy's dependence on O&G to avoid this repetitive boom/bust cycle. 

[august948]

Perhaps another benefit to us with low oil prices is that it costs less to ship by sea.  And, lo and behold, the Panama Canal expansion is nearly complete.

[Sunstar]

I think the big elephant in the room is that the world is slowly weaning itself off of fossil fuels. More so coal now, but I anticipate the demand for oil to slowly decline over the next several decades. But that is plenty of time for Houston to broadly diversify its economy so the impact modest. Because of the port, and the medical center and the institutions of higher learning, Houston will always be an economic power. 

 

And I say all this as someone who works in the Industry, so I'm not anti- O&G. Just looking at the writing on the wall.

[Houston19514]

I think the big elephant in the room is that the world is slowly weaning itself off of fossil fuels. More so coal now, but I anticipate the demand for oil to slowly decline over the next several decades. But that is plenty of time for Houston to broadly diversify its economy so the impact modest. Because of the port, and the medical center and the institutions of higher learning, Houston will always be an economic power. 

 

And I say all this as someone who works in the Industry, so I'm not anti- O&G. Just looking at the writing on the wall.

 

I think it's more like a small mouse in the room.  Let us know when there is some evidence of declining global demand for oil.  Maybe some evidence will appear over the next several decades; but so far, not so much.

 

[DrLan34]

Very interesting article from the Bauer Institute for Regional Forecasting on the outlook for Houston in 2016.

 

https://www.bauer.uh.edu/centers/irf/houston-updates.php

 

Job Growth Forecast:

 

[BigFootsSocks]

The export ban lift is gonna be huge for ports that have reconfigured or begun planning/construction to export LNG.

It's actually cheaper for the UK to import LNG from the coast than it is for their own refineries. Don't ask me for a source, I just heard that from a family member who deals with these oil companies.

[Houston19514]

The export ban lift is gonna be huge for ports that have reconfigured or begun planning/construction to export LNG.

It's actually cheaper for the UK to import LNG from the coast than it is for their own refineries. Don't ask me for a source, I just heard that from a family member who deals with these oil companies.

 

I don't think the export ban lift has anything to do with LNG exports.  The export ban only related to crude oil.

 

[samagon]

There are still huge oil terminals in the ship channel, able to transfer vast amounts of crude. I think bostco currently has capability to service 2 ships simultaneously, and they're building to provide service to 4 at a time. And they have the capacity to service like 15% of all the crude needed for the entire country.

With all the pipelines that go to the area for the refineries, it spells boon for Houston shipping.

I also understand that a lot of refineries are set up currently to process the heavier crude that comes from the world market, so the ability to ship the lighter stuff from here shouldn't have too much of a negative impact on local refineries.

I could obviously be wrong, since I don't study this stuff, it's only what I see based on the dealings I have through my regular job.

The whole of the gulf coast could win.

[Triton]

My stance is going to be pretty controversial but I think in light of recent internal data I'm seeing, I have to change my forecast.

 

 

Let me start off by saying, I'm not freaking because oil has dropped to $30. I try to be realistic in my assessments. For almost a year now, I said Houston would simply see a drop in its growth but that it would still stay afloat. However, the more data I'm starting to pour over and the amount of more layoffs/mergers that will be arising soon (expect more announcements), I now forecast Houston will go into a recession... this is two consecutive quarters of negative growth. This will most likely occur during Q4 2016 and Q1 2017, but if oil keeps tumbling, it could even start Q3 2016.

 

Why this change? Started a week ago actually, when I saw a new report on the health of the Houston and Texas economy... Hopefully I can release some more stats soon. I saw that home sales are starting to absolutely plummet, a fundamental indicator of a market going south. The data shows we're going to start seeing apartment units and homes sit on the market for a while. The data also shows we are starting to see board layoffs occurring in other fields such as engineering as well, an indirect fallout from the oil market fiasco. I have friends in almost every field in Houston and several of them were laid off this very week. In fact, I work for a commercial loan servicing platform and we are experiencing layoffs as well. Again, I still see bright spots in healthcare, hotel, downstream oil, and retail, but it's not enough to keep Houston on the up side. Expect most proposed projects to be cancelled. Oil can still recover to perhaps the $40s by summer but the damage to the market has already been done. The problem with what I am saying is that it's not exactly.... viewable just yet. It's going to take time to feel the full effects of what's about to hit. Think of it this way, it took 5 years for the US economy to get hit hard by the housing collapse. Edit: About 2-3 years.

[BigFootsSocks]

Say what you're saying is...you're a Houston hater. Got it.

[Triton]

Say what you're saying is...you're a Houston hater. Got it.

 

Hey now, Montrose1100 told me not to fan the flames so I won't.

[UtterlyUrban]

Triton:

I agree with you and I have been writing similar sentiments for much of this thread.

[strickn]

Job Growth Forecast:

 

Jobs.JPG

that Institute for Regional Forecasting link is a good read, thanks DrLan.

 

The US Council of Mayors politely assumed six months ago (p. 75) that our gross metropolitan product growth rate would rebound up to roughly the national avg. this year.

 

on p.65, they project our employment and real GMP growth rates:

 

Houston 2014 employment up 3.5% over 2013, real GMP up 4.7%

Houston 2015 employment up 1.5% over 2014, real GMP up 0.2%

Houston 2016 employment up 1.3% over 2015, real GMP up 2.8%

 

but to post such a big surge in value on even slower hiring seems unlikely. 

[Montrose1100]

I heard the forecast for oil is looking grimmer each day. Talking about $10 oil sounds frightening.

[swtsig]

those are just houston HATERS getting all jealy that houston is about to enter a recessio.... errrr, i mean totally BOOMING.

[Montrose1100]

those are just houston HATERS getting all jealy that houston is about to enter a recessio.... errrr, i mean totally BOOMING.

The low fuel prices will benefit many people, but considering how much space was constructed this go-around for energy and energy related companies, they could leave even more space empty. While we may have growth in other sectors, it's not enough to fill the void that will be left behind. I don't wish ill on anyone in the industry as oil and production products are a commodity in my field (not a majority, but still a piece of the pie). I'm also usually optimistic but it looks like even tougher times ahead.

I hope our city has an agressive plan to attract other industries, but our neighbors to the North & Northwest seem to be winning all the jobs. I know the medical field is doing great but we need other sectors to see similar growth.

[IronTiger]

I'm afraid we gotta face reality, and I read that the Iranians may keep oil prices low by exporting it. The '80s really messed up a lot of neighborhoods permanently, and I'd hate to see more Houston become slums.

[samagon]

The bust occurred because a decision made by OPEC to end the embargo. There isn't that kind of lever positioned over us now. Not going to say that there won't ever be another bust or that this boom won't level off. But just because we had one big boom before doesn't mean we will have another in the same way.

 

there was a culmination of factors that led to what happened back then.

 

opec did their thing.

there were very few new oil fields being explored (could be explored).

all the Texas banks went tits up.

way huge immense overbuilding.

 

this time is different.

 

instead of opec flooding the market, opec decided not to slow down production to keep the market from being flooded (if you look at production, we are who flooded the market, and we expected opec to play cool and cut production to match). it's a huge distinction.

 

usa was a declining market for oil production in the 80s. yeah, there were some plays in gom, alaska, and there was work in the north sea, but all the easy stuff was out of the ground, we were tapped out for what was technologically feasible at the time. it wasn't just a matter of waiting for demand to catch up with supply, there was no new supply coming out of the usa.

 

so now, look at companies like Exxon, Chevron, whoever, it's not that they are losing money, they are still making huge profits, it's just that the profits aren't as huge as they were two years ago. yeah, that still results in cuts in employment, see what Schlumberger just did yesterday, and there will be more. But, I'll maintain the same line I did a while back, yeah, we may see some jobs lost in the oil industry, but Houston is still going to net gain jobs, or stay close to even.

 

And finally, back in the 80s Houston had been building like crazy for years, you can look at the millions of square feet built, and compare it to anything, you can see if was pretty crazy. Now though, yeah, they're building, they're still building, but for about 3 years there were 50-100 thousand people moving to this city, but because of the overall national economic state nothing was being built here. does anyone else think it's insane that an apartment you could rent 10 years ago for just over 1000 goes for just under 2000 these days? demand is still high enough, and we need a slight correction still to bring rental prices back to a place that will allow Houston to continue to be a market where anyone can survive.

[IronTiger]

there was a culmination of factors that led to what happened back then.

 

opec did their thing.

there were very few new oil fields being explored (could be explored).

all the Texas banks went tits up.

way huge immense overbuilding.

 

this time is different.

 

instead of opec flooding the market, opec decided not to slow down production to keep the market from being flooded (if you look at production, we are who flooded the market, and we expected opec to play cool and cut production to match). it's a huge distinction.

 

usa was a declining market for oil production in the 80s. yeah, there were some plays in gom, alaska, and there was work in the north sea, but all the easy stuff was out of the ground, we were tapped out for what was technologically feasible at the time. it wasn't just a matter of waiting for demand to catch up with supply, there was no new supply coming out of the usa.

 

so now, look at companies like Exxon, Chevron, whoever, it's not that they are losing money, they are still making huge profits, it's just that the profits aren't as huge as they were two years ago. yeah, that still results in cuts in employment, see what Schlumberger just did yesterday, and there will be more. But, I'll maintain the same line I did a while back, yeah, we may see some jobs lost in the oil industry, but Houston is still going to net gain jobs, or stay close to even.

 

And finally, back in the 80s Houston had been building like crazy for years, you can look at the millions of square feet built, and compare it to anything, you can see if was pretty crazy. Now though, yeah, they're building, they're still building, but for about 3 years there were 50-100 thousand people moving to this city, but because of the overall national economic state nothing was being built here. does anyone else think it's insane that an apartment you could rent 10 years ago for just over 1000 goes for just under 2000 these days? demand is still high enough, and we need a slight correction still to bring rental prices back to a place that will allow Houston to continue to be a market where anyone can survive.

Overbuilding was one of the huge problems in those days, and looking back, it's easy to see horrible ideas that they haven't done since. Gulfton was a horrible idea...sure, build square miles of solid apartment complexes, see what happens! Boom times bring a lot of money in but they also seem to harbor bad ideas...honestly, I think that the "Pierce Elevated is on too valuable land" is one of those bad ideas, just like "Oh, Astroworld is prime real estate! We'd better close it down and sell off the land" only for it to turn out that it basically became an unpaved parking lot even over a decade later.

The bank problem was also a major issue, though if this downturn coincided with the 2008-2010 recession, that might've created bigger problems.

[DrLan34]

http://www.cnbc.com/2016/01/21/oilfield-services-firm-schlumberger-cuts-10000-jobs-makes-1b-loss-in-oil-price-rout.html

 

Schlumberger cuts 10,000 jobs amid oil price rout

[samagon]

and then there's this, from the same website no less...

 

Oil rallies hard, but this is not the bottom

http://www.cnbc.com/2016/01/21/oil-rallies-hard-but-this-is-not-the-bottom.html

 

Oil has ‘definitely’ bottomed: Vedanta Resources

http://www.cnbc.com/2016/01/22/oil-has-definitely-bottomed-vedanta-resources.html

[Urbannizer]

3 Houston Economists: Why Oil won't Balance until 2017 and why Houston Doesn't Need it to 

 

Greater Houston Partnership regional economist Patrick Jankowski says the US is working to decrease production to correct the glut of oil on the market. But it’ll be offset by Iran, which aims to increase production by 1 million barrels by the end of the year. He doesn’t think supply and demand will balance for at least another 18 months. Institute for Regional Forecasting economist Adam Perdue thinks it’ll take us longer to decrease our production than people predict. We still don’t fully understand shale and where the sweet spots are, so supply can be unpredictable. He thinks it’ll probably balance in 2017.

 

Pricing could increase before we reach supply equilibrium, Patrick says, but he doesn’t see anything that’d have an immediate positive impact. And even if crude suddenly rose to about $60, hiring wouldn’t surge. First, companies will have to pay down debt. The oil industry has spent more than it’s earned eight of the last 10 years, and energy firms owe $2B. Next, energy companies will look to E&P. Hiring, leasing, and even new rigs and equipment wouldn’t follow for a little while. It’ll get uglier before it gets better, says Deniese. She doesn’t know where the bottom is, but says we haven’t hit it yet. The New York Mercantile Exchange thinks we’ll bounce along this range for years—it expects oil to average $24.36/barrel in 2016, then up to $38.61 in ’17 and $41 in ’18. And they’ve been editing those down recently.

 

The good news: We’ve done this all before, says Deniese. These cycles aren’t new, and Houstonians and major energy companies know what to do. It’s just not fun to hunker down and push through it. Patrick says the recent decreases in oil prices have been knee-jerk emotional reactions not driven by fundamentals—as Deniese puts it, the market is efficient long-term, but short-term it’s driven by fear and greed. Plus, Houston is very resilient and has become diversified. (The next two years will test just how much.) In fact, Patrick says oil isn’t Houston's engine anymore; it’s our governor. When oil is booming, it opens up and we race along like no one else. When oil is down, it slows our growth. Houston has only lost jobs five years out of the last few decades, and one of them was 2009, when all metros lost jobs no matter their dominant industries. Patrick believes we’ll continue to post positive job stats through this downturn; he’s holding to his prediction that we’ll add 22,000 jobs in 2016. Adam concurs, saying even his worst-case scenario has Houston adding jobs overall.

 

[swtsig]

i just don't see us adding jobs but i'm far from an economist. regardless, 120,000 to 20,000 YTY is a massive drop.

[Montrose1100]

A job lost in the energy industry will have far greater impact than a job gained at Walmart.

No one truly knows what the future will hold, but it looks pretty grim for the next 2-3 years minimum.

[MexAmerican_Moose]

looks pretty good for those of us that have been holding off on buying a house