The Texas Gulf Coast Overview and Outlook Jesse Thompson Federal Reserve Bank of Dallas Houston Branch 06/2018 The views expressed in this presentation are strictly those of the presenter and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System.
Texas Gulf Coast 2
Texas Gulf Coast Three main factors are shaping the Texas Gulf Coast outlook Energy Industry Boom-Bust-Recovery Petrochemical Manufacturing & Construction Boom & Energy Exports Hurricane Harvey 3
Employment: Gulf Coast Metro Employment Plateaus in Oil Bust, Index, Dec.2014=100 108 Texas (ex. Gulf Coast) 106 U.S. (ex Texas) 104 102 Texas Gulf Coast 100 98 2015 2016 2017 2018 NOTE: Victoria data seasonally adjusted using x12. SOURCE: Bureau of Labor Statistics; adjustments by the Dallas Fed. Harvey: 13.8k jobs off Gulf Coast payrolls in Sept. 2017 4
Population: Gulf Coast growth slowed on domestic net migration in wake of oil bust. Thousands of People 200 Domestic Net Migration International Net Migration Natural Increase 150 100 50 0 58.5 65.9 63.6 26.3-15.0-50 2013 2014 2015 2016 2017 SOURCES: Census Bureau. 5
Unemployment: Harvey impact bigger in Beaumont and Corpus Christi. Labor markets are tight. Percent 9 8 Beaumont Corpus Christi Houston Victoria Texas 7 6 5 4 3 SOURCE: Bureau of Labor Statistics. 2015 2016 2017 2018 6
Energy 7
Energy Survey: In the top two areas in which your firm is active: What WTI oil price does your firm need to profitably drill a new well? Dollars per barrel 90 80 70 60 50 40 30 20 10 Permian (Midland) Permian (Delaware) Bakken $47 $49 $50 Permian (Other) SCOOP/ STACK Other U.S. (Shale) Other U.S. (Non-shale) $52 $53 $54 $55 0 15 13 4 18 7 7 34 Number of responses NOTES: Line shows the mean, and bars show the range of responses. 65 E&P firms answered this question from March 14-22, 2018. SOURCE: Federal Reserve Bank of Dallas. 8
Energy Cycle: Texas Energy Recovery Continues Index, June 2014 = 105.79 110 Thousands of jobs 580 95 Selected mining-related jobs 540 80 65 50 Crude oil price 500 460 35 TX rig count 420 20 2014 2015 2016 2017 2018 NOTES: Rig count and nominal price of West Texas Intermediate crude oil indexed to June 2014 = 105.79. SOURCES: Energy Information Administration; Baker Hughes; Bureau of Labor Statistics; adjustments by the Dallas Fed. 380 9
TX Oil Basins: Drilling activity up on higher prices. Rigs 240 225 210 195 180 165 150 135 120 105 90 75 60 45 30 2014 2015 2016 2017 2018 Permian Eagle Ford Rigs 645 570 495 420 345 270 195 120 SOURCE: Baker Hughes 10
Manufacturing Construction & Trade 11
Real Energy Exports: Oil and gas exports surging amidst elevated Billions of dollars 7 6 Petroleum and coal products 5 4 Oil and gas 3 2 Chemicals 1 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NOTES: Data are for the Houston-Galveston and Port Arthur customs districts. Values are centered three-month moving-averages, adjusted to June 2014 dollars using NAICS export price indices. SOURCES: Census Bureau; Bureau of Labor Statistics. 12
Super-cycle of Chemical Investment Underway 139 announced projects valued at $71 billion. 65% of projects are foreign direct investment (or include a foreign partner). Second Wave of construction deliveries scheduled for 2020. Some Planning-stage projects (gray bars) may not get built. Announced Chemical Industry Investment in Texas Billions of Number of dollars Projects $16 30 $14 25 $12 $10 20 $8 15 $6 10 $4 $2 5 $0 0 2010-2012 2014 2016 2018 2020 2022+ Complete Under Construction Planning Number of Projects NOTE: Data as of June 2018 SOURCE: American Chemistry Council NOTE: The data is based on publicly available information, which is believed to be accurate, but have not been independently verified by ACC. Source: American Chemistry Council analysis. 13
Super-cycle of Chemical Investment Underway Chemical Construction-related job boom past its peak. Number and Value of new project completions Peaked in 2017. Peak was blunted due to Hurricanes and project delays. Midstream and refinery construction projects will absorb some of the construction jobs lost over the next two years *As of 2018:Q2 SOURCE: American Chemistry Council Billions of dollars $16 $14 $12 $10 $8 $6 $4 $2 Announced Chemical Industry Investment in Texas Number of Projects 30 $0 2010-2012 2014 2016 2018 2020 2022+ Complete Under Construction Planning Number of Projects NOTE: The data is based on publicly available information, which is believed to be accurate, but have not been independently verified by ACC. Source: American Chemistry Council analysis. 25 20 15 10 5 0 14
Hurricane Harvey 15
Hurricane Harvey: Impact smaller than expected, gowth well above Sept. 2017 projections Thousands of jobs, SA 3,520 3,500 3,480 3,460 3,440 3,420 3,400 3,380 3,360 3,340 Baseline 9/4/17 $60 billion estimate of Harvey Damages (9/4/2017) Extrapolated from actual data Aug. 2017 to May 2018 2017 2018 NOTE: Gulf Coast includes the Houston, Beaumont-Port Arthur, Victoria, and Corpus Christi MSAs. SOURCES: Bureau of Labor Statistics; National Oceanic and Atmospheric Administration; authors' calculations. 16
Construction Job Growth: Hurricane Harvey keeping construction job growth elevated. Percent 15 10 Jan. 2018 to Apr. 2018 Apr. 2017 to Apr. 2018 Average since 2000 12.7 8.5 5 3.1 3.8 4.8 0 Total construction (7%) 0.6 1.0 Specialty trade contractors (4%) NOTES: Numbers in parentheses represent share of total Houston employment. Shares are rounded. SOURCES: Bureau of Labor Statistics; adjustments by the Dallas Fed. 0.2 Construction of buildings (2%) Heavy & civil (2%) 17
The Texas Gulf Coast Overview and Outlook Jesse Thompson Federal Reserve Bank of Dallas Houston Branch 6/2018 The views expressed in this presentation are strictly those of the presenter and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or the Federal Reserve System.
TX Imports of Iron & Steel: Tariff applies to significant share of imports, correlated with recent well permits Billions of Dollars 1.8 Number of Well Permits 3000 1.6 1.4 Value of Imports Subject to Tarrif Texas Oil & Gas Well Permits 2500 1.2 2000 1.0 0.8 1500 0.6 1000 0.4 0.2 Total Iron and Steel Imports (ex tariffed items) 500 0.0 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 NOTES: Data are seasonally adjusted, three-month centered moving-averages. SOURCES: Census Bureau data accessed June 8th 2018. 19
OECD Stocks: Petroleum & Other Liquids Inventories Level Below 5-yr moving average. Millions of barrels, eop 3,200 3,100 3,000 April. 2018 2,816 2,900 2,800 2,700 2,600 5-year moving-average 2011-2015 average 2,500 2014 2015 2016 2017 2018 2019 NOTE: Dashed line is a forecast. SOURCE: Energy Information Administration. 20
Downstream Activity: Recovered from Harvey in a few weeks. Thousands of railcars 32 31 30 29 Chemical railcar loadings Percent utilization 100 95 90 85 28 27 26 25 24 Gulf Coast Refinery utilization rate -1 Landfall 1 2 3 4 5 6 7 8 9 Weeks since hurricane landfall 80 75 70 65 60 SOURCES: Association of American Railroads; Energy Information Administration. 21