The statement: “Oil and gas are 35 percent of the state’s economy, which makes the Texas Railroad Commission’s budget a top priority.” Christi Craddick, chairman of the Texas Railroad Commission, a Republican from Austin.
Craddick tweeted the statement earlier this month when she advocated the priority of the Railway Commission – the state’s oil and gas regulation agency – in next year’s state budget.
Fact assessment: mostly true. The oil and gas industry accounted for up to 40 percent of the state economy during the past decade’s hydrofracking, yet shrank to 30 percent before the pandemic shocked the world economy.
Discussion
The oil and gas sector in Texas collapsed in 2020 when the coronavirus pandemic was compounded by a Saudi Arabia-Russia price war that further devastated the global oil market.
Texas oil and gas producers have suffered the double blow of COVID-19 and the global price shock amid an era in which the industry is undergoing a process of structural contraction. Oil and gas have long been a primary driver of Texas’ prosperity, but does its share of the state economy remain at 35 percent, even after a historically turbulent year?
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Determining the share of the oil and gas industry in the state economy is a difficult number, ‘said Jesse Thompson, senior business economist at the Federal Reserve Bank of Dallas.
Thompson has a multitude of ways in which the economic impact of an industry can be measured. The impact can be the share of the industry in the gross government product of a state, or the number of jobs it creates, or the amount of revenue it generates, or a combination of the three.
Direct impacts are the simplest measurement. According to the Bureau of Economic Analysis, a federal agency, the oil and gas sector accounted for approximately 15 percent of Texas’ gross domestic product directly between 2019 and early 2020. The share fell to about 14.2 percent as the coronavirus swept the world and shut down the job-creating and drilling industry in the second quarter of 2020, the latest period for which economic data is available.
According to Craddick’s spokesman, the 35 percent figure Craddick quoted represents the direct impact of the oil and gas sector on gross government product, along with its indirect and induced effects. The 35 percent figure is also a forecast of how the year will end after the industry has fallen back from the April nadir.
“We’ve seen improvements over the rest of the year, so the number will definitely end up between 30 and 40 percent, so 35 percent was an easy midpoint,” said Mia Hutchens, director of public affairs, of Craddick.
Certain indicators are already showing the recovery of the sector. Texas counting has risen slightly since October, in line with rising global demand for oil and natural gas. After nearly 60,000 oil workers lost their jobs between February and August, about 2,100 jobs were added in September and October, according to the Texas Independent Producers and Royalty Owners Association. The association also plans to support the industry with at least 300,000 direct jobs and 2.1 million indirect jobs in Texas by the end of the year.
The 35 percent projection was calculated using data from the Texas Controllers Office, the Texas Pipeline Association and the Texas Oil and Gas Association, the sector’s largest industry group in the state, according to Hutchens.
At the beginning of 2020, before COVID-19 reached all corners of the globe, the Texas Oil and Gas Association tied the industry’s share of Texas’ gross state product to 30.5 percent. According to a spokesman, the trade group determined the number by finding the sum of the industry’s direct contributions to Texas’ gross government product – $ 223.1 billion, or about 13.5 percent of the state economy.
To capture the indirect and induced ‘ripple’ effects of the industry, the Oil and Gas Association multiplies the industry’s direct gross government product by 2.3, which means that every dollar spent in the industry is based on $ 2.30 in economic activity. This multiplier produces an estimated $ 502.6 billion economic impact on the state, or 30.5 percent of the private sector’s gross state product.
For Karr Ingham, a petroleum economist at the Texas Alliance of Energy Producers, the association’s calculation method with a multiplier of 2.3 is “fairly close to right.”
“It’s not high. If there can be something that is low, ”Ingham said. “I’ve heard in the past commissioners and other political parties and other cheerleaders in the industry say that the oil and gas multiplier is 7.”
Craddick’s 35 percent figure reflects the commissioner’s belief that the industry will start stronger next year than it did in 2020. Although several indicators point to an upward trajectory of the industry – such as oil prices, jobs and equipment – Ingham says the 35 percent projection may be slightly optimistic.
‘It’s a little hard to tackle [Craddick’s number] just because it’s guesswork, ”Ingham said.