Deep in the heart of Texas, oil and gas losing economic luster
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Key Findings
Texas regulators, lawmakers and opinion leaders emphasize an upbeat storyline for the state’s oil and gas industry. They point to the state’s dominant position in the national energy sector. Texas hosts 30 percent of U.S. refining capacity and 75 percent of the nation’s petrochemical production.
The state is responsible for 20 percent of total U.S. exports, and more than one-third of Texas exports can be directly traced to the state’s energy sector. Those impressive economic contributions, however, obscure the reality that oil and gas companies no longer drive the state’s economic growth.
Executive Summary
To position the state for continued success in an evolving economy, Texas policymakers must recognize that the oil and gas industry is in decline. The economic data now point to significant deterioration in the industry and its tax contributions, employment levels, and overall contribution to the state’s economy.
This is not a potential risk that might unfold sometime in the distant future. It is a current economic reality, grounded in facts:
- In 1981, the oil and gas industry was responsible for 21% of the Texas gross state product. Today, that portion has dropped by more than half, to just 10%.
- The oil and gas industry accounted for 28% of state tax revenues in 1981. Oil and gas annual revenues hit bottom in 1999, contributing only 3%. Although the sector’s state tax contributions have rebounded from the 1999 lows, the industry has contributed 10% or less annually to state tax revenues for the last 20 years.
- From 2010 to 2014, oil and gas companies contributed an average of $3.1 billion annually in property taxes to local governments. Since 2015, average annual collections have fallen to $2.3 billion, even as total statewide property tax collections have increased.
- The state’s economy has produced steady employment growth at an annual rate of 2.3% over the last 30 years, while oil and gas sector employment has declined. Opinions of international energy experts, investment houses, government and industry leaders, and oil and gas shareholders have crystallized into a global consensus: The oil and gas sector faces decreased demand, shifts in the use of oil and gas, and lower profits.
- Just as investors reconfigure their portfolio weightings to adjust to market conditions, Texas policymakers should consider the decreasing significance of the oil and gas industry and set the state’s future course based on the latest information and most likely future scenarios.
