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Texas Economy Expected to Weather Slump in Oil Prices

Texas Economy Expected to Weather Slump in Oil Prices

HOUSTON, Texas — Oil prices have been in a slump recently, inciting fear from brokers around the globe. But amid the downswing, it appears that Texas’ economy will be just fine — the Lone Star State’s boom shows no sign of a bust, at least for now.

A barrel of West Texas Intermediate crude oil cost just $80.49 last week; prices have not been that low since mid-2012. But the Texas boom and bust pattern of the 1970’s is not likely to recreate itself for two primary reasons: the state’s economy is more diversified than it was then and the current oil explosion is technology-driven.

Fracking — the process of blasting water, sand, and other chemicals — has played a key role in protecting the oil industry from a severe bust. Many producers have even started to “re-frack” wells, which could make the boom significantly more lucrative. Refracking involves blocking previous fractures with plastic balls. The balls, also known as diverting agents, are pumped along with water into the old drilling sites. At this point, the process is thought to be less precise than fracking a new well. 

While fracking technology is expensive, the technique has allowed producers to become partially resilient to fluctuations in oil prices, according to USA Today. If oil prices continued to drop, it would likely only impact new drilling — not wells that already exist. 

Thomas Tunstall, research director at University of Texas-San Antonio’s Institute for Economic Development told USA Today, “A slowdown would be a more realistic scenario than an outright bust. They wouldn’t just stop drilling across the board.”

Diversification in the Texas economy has also helped prevent a bust. 

In the late 1970’s, when Texas experienced a severe bust, oil and gas was a much larger share of the state’s economy. When the energy sector crashed, it had a domino effect on most of Texas’ other industries.

“Even though the oil industry and gas has been thriving in recent years, the Texas economy is no longer dependent on it for ups and downs,” gas and oil economist Karr Ingham told Breitbart Texas. “The oil and gas industry has not gotten smaller–rather, the overall Texas economy has gotten bigger. The state economy is now a powerhouse. It is more than just an oil and gas economy; it is an industrial economy, a tech economy, a business economy, a manufacturing economy…We are much better positioned in terms of experiencing a long period of economic difficulty than we were in the ’70’s.”

The “Texas Model” of low taxes and reliable regulation continue to draw businesses of all sorts to the state. Texas is continuously ranked as the best state in the nation to start a new business.

Follow Kristin Tate on Twitter @KristinBTate.

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