Cheap gas prices or not, when the oil and gas industry goes bust it hurts Fort Worth
It’s natural for commuters to celebrate low gas prices, especially in North Texas, one of the most traffic congested metro areas in the United States.
But before you get carried away with joy over all that cheap fuel at the pumps — prices for regular unleaded gasoline were as low as $1.69 per gallon this week in Fort Worth, according to Gas Buddy — it’s important to remember how vital the energy sector is to Texas in general, and Fort Worth specifically.
The state’s oil and gas industry, which by some estimates accounts for 8% to 10% of the Texas economy, had been punched in the gut during the past couple of weeks, with the coronavirus slowing the world economy and a oil price war between Russia and Saudi Arabia.
In Texas, experts say, it may be months or even years before the oil and gas industry catches its breath.
“The rig count is going to go down, and more people are going to lose their jobs,” said Karr Ingham, a petroleum economist with the Texas Alliance of Energy Producers, which advocates for industry workers.
The oil and gas sector, which already lost more than 1,600 Fort Worth-area jobs in 2019 because of gradually declining fuel prices, is projected to lose another 1,600-plus jobs this year in Tarrant County if current trends continue, he said.
Statewide, about 209,000 people work in oil and gas, including those who work for extraction and exploration companies and those employed by businesses that provide services related to field production.
Ingham calculates that, if the price of oil remains in the $30 to $35-per-barrel range for the foreseeable future, Texas could lose 20,000 to 30,000 jobs.
But jobs are just part of the equation.
Money for government services
State and local governments rely upon revenue from oil and gas to build roads and provide other services.
For the state’s coffers, oil production tax revenue was $3.89 billion last year, up 14.6% over fiscal 2018, according to the Texas Comptroller’s office. Revenue from natural gas was $1.69 billion, up 17.8% over the previous year.
The Texas Alliance of Energy Producers was expecting 2020 to be a year of steady production and perhaps modest growth. But that was before fears about the coronavirus and a spat over oil production between Saudi Arabia and Russia led to a dramatic economic downturn.
Since early February, the price of oil had been cut nearly in half, to a little more than $30 a barrel. For those who follow the industry, it reeks of a return to the last oil and gas slump of 2014-16.
However, even with the World Health Organization’s declaration of a pandemic Wednesday, Eva DeLuna Castro, a budget analyst with the Austin-based think tank Center for Public Policy Priorities, said it’s still too soon to tell what the state impact would be, stressing it depends on how long this lasts and how low prices get.
In an interview with radio show host Chad Hasty on KFYO radio in Lubbock on Wednesday, Texas Comptroller Glenn Hegar, the state’s chief financial officer, stressed that people should not be overly concerned yet.
“The economy of Texas — the 10th largest economy in the world — went for a very, very long time with $30 oil, and the state continued to grow. Again, that’s as a state. That’s not necessarily West Texas, Permian Basin,” Hegar said, noting that some regions where oil and gas production is prominent may bare the brunt more than others.
The Texas Taxpayers and Research Association, which represents businesses, estimates that every $1 drop in the price of oil could cost Texas $85 million per year.
In a statement Monday, Todd Staples, the president of the Texas Oil & Gas Association, stressed that despite difficult circumstances, Texas oil and natural gas companies “have proven themselves nimble and innovative in challenging times.”
“Historically, when oil prices have been down, free market principles, science-based regulations and ingenuity helped Texas operators weather downturns,” Staples said. “Recent developments remind us that benefits associated with a thriving energy sector are not guaranteed.”
Building roads
A majority of the revenue from the state’s oil production tax, which is a severance tax on the removal of crude oil from Texas land, is distributed to two funds: the Economic Stabilization Fund — the state’s savings account, more commonly referred to as the Rainy Day Fund — and the State Highway Fund.
“So this has more impacts on our long-term savings accounts and on one of the ways that we pay for highways. But there’s not a lot of impact on the money actually in the budget,” DeLuna Castro said.
Highways will still get built. The oil and gas proceeds are a modest and fairly recent addition to the State Highway Fund, which relies more heavily upon gasoline and diesel sales taxes paid at the pump, and on annual registration fees paid by vehicle owners.
State and local sales taxes
What could have a more immediate effect is a decrease in sales tax revenues.
With large gatherings, like the annual SXSW festival in Austin, being canceled as cases of coronavirus spread, there could be a hit to various industries, like travel and hospitality. And in an energy downturn, if people lose their jobs or earn less, they’re likely to spend less.
In turn, sales tax revenue — which for decades has accounted for more than half of Texas’ general revenue-related collections — may go down.
“That matters because sales taxes are a huge way that we pay for everything in the budget,” DeLuna Castro said.
In Hegar’s October revenue estimate, sales tax revenue was forecast to moderately grow by 9.8% for the biennium, to $66.69 billion. And last week, Hegar announced state sales tax revenue totaled $2.89 billion in February, 3.5% more than in February 2019.
“Now the question becomes, does the impact get so great — which hopefully it will not — to where thereby it begins to impact their employees?” Hegar said. “As long as they don’t have to start letting go their employees — who then will begin to have a larger ripple effect. And that really becomes the question, how far out does that ripple go?”
Hegar said the growth rate predicted last year will likely get adjusted downward once his office reassess the state’s needs for the next fiscal year, and as the coronavirus spreads, the markets will likely continue to go down in the short term.
“Hopefully calmer heads are going to prevail at some point, and we’ll see the economy continue to grow,” Hegar said. “Just, it’s going to be much more moderated than what we thought this fiscal year.”
Local impact
In Fort Worth, a dip in natural gas prices will decrease the amount of royalties the city receives from gas wells on city property. That would mean a reduction in the amount of funds that are added to the Gas Well Endowment Trust, city treasury supervisor Jay Rutledge said.
The city does not rely on gas well revenue to support daily operations. Instead that money is used to partially fund capital improvement projects, like new streets or city buildings. A recent proposal to buy natural land for preservation would be funded partially through the gas trust fund.
This year, the city has budgeted $1.1 million from the gas endowment fund for capital projects. Last year, the city budgeted less than that — $940,050 — but during the year made an adjustment and actually took $4.26 million from the fund for projects.
If the city experiences a significant shortfall in those revenues, such projects are postponed, said assistant city manager Fernando Costa, who oversees budget planning.
“We’ve always known that gas well revenues are finite,” he said, “and highly variable.”
This story was originally published March 12, 2020 at 12:05 PM.
