Houston's Pipelines of Prosperity

While the national economy has taken a turn for the worse, Houston, Texas, is reaping the benefits of record high oil prices, which are driving the city's economic boom.
By Michael A. Fletcher
Washington Post Staff Writer
Monday, June 23, 2008

HOUSTON -- Soaring oil and gas prices may be a fiscal drag for much of the nation, but here in the self-styled energy capital of the world they are feeding an economic surge.

In nearby Texas City, dozens of contractors' trailers are lined up outside the gates of massive oil refineries and petrochemical plants, evidence of the billions of dollars in upgrades going on inside. Machine shops have more work than they can handle. And students from the local community college are being snapped up for $30-an-hour plant operator jobs, sometimes before they complete their two-year training programs, part of an intensifying scramble for qualified workers.

Employment in the Houston area has grown 2.8 percent in the past year, the highest rate among the nation's 39 largest metropolitan areas and more than nine times the national rate. Area building permits are up, along with the amount of cargo moving through local ports. More than 1,800 oil and gas rigs, many of them belonging to the vast energy companies headquartered here, are in operation across the country, the highest number since the mid-1980s.

"Things are hitting just right," said Alan Hutchins, vice president and general manager for A&A Machine and Fabrication, a La Marque, Tex., firm whose business has doubled in each of the past two years, leading executives to advertise as far away as Detroit and Chicago in search of skilled machinists. "With the price of oil where it is, the companies are going to keep these plants running. They are making that money and investing it back in the plants."

All of the activity is leading to strong retail sales, increasing tax revenue and an uptick in housing prices -- in short, the opposite of what is happening in most of the country, which is being squeezed by flagging consumer confidence and high gas and oil prices.

Other corners of the country are also thriving because of high energy prices. Coastal areas of Louisiana within reach of the gas and oil rigs in the Gulf of Mexico are prospering. Areas of the Mountain West such as Wyoming have ridden rising prices for their natural gas and coal to several years of robust economic growth.

But few places have flourished like Houston, home to hundreds of oil exploration, engineering and oil service firms, including such giants as Baker Hughes and Halliburton. Although consumers here also struggle with $4 a gallon gasoline and soaring utility and food bills, the local economy has been buoyed by the huge influx of money into the energy sector, which accounts for nearly half the jobs.

"We know that everybody is talking about a recession in the U.S., but we're not experiencing that here," said Tracye McDaniel, executive vice president of the Greater Houston Partnership, a business development group. "We exist in this bubble, if you will."

The good times are reminiscent of the early 1980s oil boom, which ended suddenly when the price bubble popped. Then, as now, exploration soared as oil prices shot up. People from out of state migrated to Houston to share in the bounty. But when the price of oil tumbled, bottoming out at $10 a barrel, it took the local economy with it, as home prices plummeted and unemployment skyrocketed.

But economists say this time is different. Although a lack of supply fed the last oil boom, this time energy prices are largely being driven by global demand, which economists say is unlikely to ebb substantially in the near future. And Houston's oil industry has gone global. Many of the jobs here are related to the increasingly high-technology work of pinpointing oil and gas reserves around the world, and designing and making the tools to tap them rather than the dangerous and backbreaking work of manning oil and gas rigs.

"To the extent that Houston is the energy capital of the world, [it] is not because we have a lot of hardhats, but because we have a lot of technology," said Barton A. Smith, director of the Institute for Regional Forecasting.

The Houston economy is far more diverse than it was in the 1980s. Although energy has been the biggest engine in the Houston region's economic surge, it is not the only one. The city is also home to the Texas Medical Center, a collection of 46 hospitals, research centers and medical schools that together employ more than 73,000 people in an industry that is largely immune to ups and downs of the economy. Back in the 1980s, energy accounted for about 70 percent of the jobs here.

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