A significant amount of the Greater Houston area's economy is tied to the oil and gas industry—nearly 40 percent of all jobs—with a number of companies located in Tomball, The Woodlands, Spring and Cy-Fair, such as Baker Hughes, ExxonMobil, Anadarko Petroleum Corporation, National Oilwell Varco and Southwestern Energy.
"You won't do a sophisticated drilling job anywhere in the world without contacting a Houston company," said Bill Gilmer, director of the Institute for Regional Forecasting in the Bauer College of Business at the University of Houston. "When drilling declines elsewhere around the world, that makes a difference here in Houston in terms of the amount of workers you'll need."
Although local economists do not believe the 2014-15 downturn will be as severe as the oil bust of the mid-1980s, layoffs in the oil and gas industry began in January and are expected to continue this year, said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership.
"It will cause some pain for Houston, but it won't be a repeat of the 1980s," Jankowski said. "We learned our lessons then; growth will slow down, but the economy isn't going to implode."
Drop in prices
Oil prices began dropping in July due to a combination of factors, most notably overproduction of oil and less demand for oil from the developing world, Jankowski said.
"In 2008, we were only producing 5 million barrels a day, and now we are producing 9.2 million a day," he said. "We've almost doubled our production, and normally that would be a good thing but demand in the rest of the world hasn't grown as fast."
The price for one barrel of oil dropped from $104.48 in June 2014 to $47.98 in January. In recent years, the U.S has increased its output of oil significantly due in part to horizontal drilling, or fracking.
"The demand for oil is growing in developing countries but not fast enough to sop up the new oil we've discovered," Jankowski said. "That's what has been driving [the price of oil] down."
It is impossible to predict the price of oil, Jankowski said, but looking at the trends in drilling and production, once the oil surplus begins to shrink late this year, there should be an improvement in prices. Until then, layoffs in the oil industry are expected to continue in Houston.
"If you're in the oil and gas business, you will have less money from the oil you're producing," Jankowski said. "With less revenue, it makes it more difficult to meet payroll, service any debt and continue to drill for oil."
Chain reaction
The first jobs cut due to the falling oil prices typically start in the oil field and move down the line to the manufacturing plant, Jankowski said.
"Eventually you don't need people in the office supervising the office workers," he said. "We've seen layoffs announced by oil field service companies, but we haven't seen the domino effect running backwards just yet."
Manufacturing layoffs have already hit Spring and Tomball as Baker Hughes announced plans in January to cut 7,000 jobs from a total workforce of 62,000. Melanie Kania, enterprise media relations specialist for Baker Hughes, said the company's decision to reduce workforce numbers and spending was a difficult but important move that will help the company remain competitive. Kania declined to comment on any location-specific layoff numbers.
"Oil and gas market conditions have become increasingly challenging," Kania said. "All impacted employees will be eligible for severance benefits."
Workers with more specialized job skills, such as reservoir engineers or geologists, will not be as vulnerable, Gilmer said.
"When the [1980s] bust came, we downsized and the baby boomers became the American oil industry," he said. "We'll probably see those jobs protected."
The oil and gas industry is divided into upstream and downstream industries. Upstream companies focus on exploration, field development and production operations, while downstream companies manufacture and refine oil and gas.
"Anyone who is associated with upstream companies will be the most directly impacted," said Adam Perdue, economist with the University of Houston's Bauer Institute for Regional Forecasting. "In the U.S. and worldwide, those companies are concentrated in Houston."
At the other end of the spectrum, lower oil prices are good for the petrochemical and refining industries in east Houston.
"The main job losses will be white-collar jobs, and it will be the west side of Houston that gets hurt from that," Gilmer said. "We'll probably create 40,000 new jobs in Houston this year, but it won't feel good on the west side. And it will feel like a boom town on the east side of Houston."
A significant amount of the Greater Houston area's economy is tied to the oil and gas industry—nearly 40 percent of all jobs—with a number of companies located in Tomball, The Woodlands, Spring and Cy-Fair, such as Baker Hughes, ExxonMobil, Anadarko Petroleum Corporation, National Oilwell Varco and Southwestern Energy.
"You won't do a sophisticated drilling job anywhere in the world without contacting a Houston company," said Bill Gilmer, director of the Institute for Regional Forecasting in the Bauer College of Business at the University of Houston. "When drilling declines elsewhere around the world, that makes a difference here in Houston in terms of the amount of workers you'll need."
Although local economists do not believe the 2014-15 downturn will be as severe as the oil bust of the mid-1980s, layoffs in the oil and gas industry began in January and are expected to continue this year, said Patrick Jankowski, senior vice president of research for the Greater Houston Partnership.
"It will cause some pain for Houston, but it won't be a repeat of the 1980s," Jankowski said. "We learned our lessons then; growth will slow down, but the economy isn't going to implode."
