For well over a century, the vast reserves of oil and natural gas in Texas have contributed to business activity and job creation. We recently took a close look at the impact of the sector on business activity across the state and found it directly or indirectly supports about one of every six Texas jobs.
Using models and systems I developed decades ago, we measured the total economic impact of the energy sector, including the ripple effects through the supply chain and the consumer spending effects.
Texas has developed a deep network of suppliers to the industry, which enhances its importance. In addition, benefits flow throughout the economy, with opportunities across a broad spectrum of industries. In fact, our analysis showed gains in more than 400 sectors of the economy — in other words, just about everything.
The current total annual economic benefits of the Texas energy sector (oil and natural gas exploration and production as well as related industries) is estimated to include total expenditures of $557.4 billion, gross product of $198.8 billion, personal income of $120.6 billion, and more than 1.9 million jobs. Tremendous growth in the industry is expected to increase the economic benefits over time.
Production has risen sharply in recent years, up about 500% since 2010. New recovery methods have led to oil being extracted in areas it was previously not thought to be possible, and lower costs and higher recovery rates are helping to reduce the cyclical nature of the industry.
Increased production levels have led to a reduction in the need for imports. In fact, there is now a surplus of U.S. crude as domestic demand for fuels and other refined products is not growing nearly as rapidly as production. Virtually all of the “new” petroleum will be exported in some crude or refined form. Massive investments are occurring in pipelines, storage facilities, port and shipping capacity, and other key industry elements to transport the oil and gas to foreign markets where it is desperately needed. U.S. exports of liquefied natural gas (LNG) are also rising.
Major industry groups in the sector include oil and gas extraction, drilling, oil field services, pipeline construction and development, oil-related durable manufacturing, pipeline operations, refinery operations, and petrochemical operations. Establishments in each of these industries purchase a variety of necessary input goods and services from companies that, in turn, procure needed goods and services from still other firms. Employees are paid wages and salaries throughout this supply chain that they then recirculate.
Benefits thus spread across the economy, flowing not only to companies involved directly or indirectly in supplying the industry, but also to those meeting consumer-oriented needs.
We used our impact assessment system to quantify the stimulus the energy sector provides to every nook and cranny of the business complex. While many of the industries with significant effects are predictable, others are less apparent. The largest include oil and gas extraction (certainly not surprising), but also various categories of retail and wholesale trade, food and beverage stores, general merchandise stores, and restaurants. Moreover, car dealers see a notable impact, as do electric power suppliers, insurance carriers, telecommunications firms, trucking companies, hospitals, air transportation, and engineering services.
Looking specifically at manufacturing industries provides a different perspective on the linkages between the energy sector and other businesses across the state. In addition to related industries such as petroleum refineries and chemical manufacturing facilities, effects are sizable for a variety of other types of operations such as apparel manufacturing and fabricated structural products. In fact, more than $300 million in yearly output is supported by the energy sector in 28 distinct Texas manufacturing industries.
When the economic effects and business opportunities related to oil and gas exploration and production are contemplated, it is not uncommon to focus on the industries and geographic areas most directly related. But the energy sector permeates the economy, providing a variety of opportunities for companies across the state. Moreover, there is every indication it will expand substantially in the future, with falling production costs diminishing (although not fully eliminating) the volatility that has characterized the sector since its inception.
For Texas, this amazing resource will continue to fuel economic expansion and opportunity.