Page 10 - April 2023

ENERGY UPDATE Upstream energy plays a smaller role in Houston’s
Russia’s invasion of Ukraine, a surge in crude prices, economy than it once did, so any increase in exploration
and increased global demand made ‘22 a record year activities will provide a breeze, not a tailwind, for the
for the energy industry. Combined, the net profits for local economy. At the December ’14 peak, exploration and
BP, Chevron, Equinor, Exxon, Shell, and Total Energies production, oil field services, oil field equipment manu-
topped $219 billion, more than double the $100 billion facturing, and engineering services accounted for one in
booked in ’21. every ten payroll jobs in the region, according to the Texas
’23 promises to be strong as well. The International Workforce Commission. That has declined over time. As of
Energy Agency (IEA) forecasts global oil consumption to December, ’22, those sectors accounted for fewer than one
hit a record 101.9 million barrels per day this year, roughly in fifteen jobs.
2.0 million barrels above ’22 consumption levels. Asian
economies will drive demand, accounting for 1.4 million UPSTREAM ENERGY EMPLOYMENT,
barrels of the increase. About 900,000 of that will come from METRO HOUSTON*
China. The surge will occur despite efforts by businesses,
consumers, and governments to reduce fossil-fuel usage.
The U.S. Energy Information Administration (EIA) fore-
casts Brent, the global crude benchmark, to average $84 per
barrel, and West Texas Intermediate (WTI), the U.S. bench-
mark, to trade near $78 a barrel. The average breakeven
price for a new well drilled in the U.S. was $56 per barrel in
early ’22. That will likely be higher this year.
The greatest impediments to growing production remain
increased costs, supply-chain bottlenecks, labor shortages,
a maturing resource base, and access to capital, according
to a recent survey by the Federal Reserve Bank of Dallas.
Fifty-eight percent of survey respondents expect costs to
rise this year, 27 percent expect them to stay close to ’22
levels, and 15 percent expect no change or a slight dip.
Longer term, the IEA projects oil demand to peak in
the mid-30s, hold steady until about ’50, then decline.
The Organization of the Petroleum Exporting Countries
expects demand to peak in wealthier nations this decade * Exploration and production, oil field services, oil field equipment
but grow at least until ’45 in poorer nations. Government manufacturing, and engineering.
mandates to reduce usage of fossil fuels and energy-secu- Source: Partnership calculations based on Texas Workforce
rity concerns stemming from Russia’s invasion of Ukraine Commission data
may accelerate the timelines.

PURCHASING MANAGERS INDEX
The Houston PMI peaked late in ’21 and has trended
down since. It slipped from 53.8 in December ’22 to 50.8
in January ’23. Any reading below 50 signals a downturn
in the local economy. The PMI has proven to be an accu-
rate gauge of economic activity in the past.
• It fell below 50.0 in November ’08, signaling the
start of the Great Recession in Houston.
• The PMI slipped to 48.9 in January ’15, signaling
the start of the Fracking Bust.
• In August ’17, it slipped to 46.5 reflecting the
impact of Hurricane Harvey.
• And in March ’20, it plummeted to 40.3 marking the
onset of the COVID-induced recession.
Currently, activity is robust in some sectors and weak
in others. The Manufacturing PMI slipped to 48.6, sug-
gesting weakness in that sector of the Houston economy,
while the Non-Manufacturing PMI came in at 51.2, sug-
gesting ongoing expansion in the region’s service sectors.

10 NBIZ ■ April 2023