Cheap Saudi Gas Poses Significant Threat to Texas Economy

Cheap Saudi Gas Poses Significant Threat to Texas Economy

While Americans have been enjoying cheap gas during recent weeks, the falling price of oil may have bleak implications for the state of Texas. 

In an effort to push Texas out of the worldwide energy market space, Saudi Arabia has inundated the U.S. with low cost oil. Crude oil is currently selling for less than $80 per barrel, which marks a 29 percent decline from this year’s peak price. The result? Drilling companies based in the Lone Star State have started to cut back on exploration work. 

Baker Hughes Inc. — one of the world’s largest oilfield services companies, headquartered in Houston — shut down for of its crude oil rigs in Texas’ Permian Basin according to the Dallas Morning News

This is a trend that will continue if low oil prices hold, experts say. 

Daniel Yergin, an oil historian and Vice Chairman of the consulting company IHS, Inc., reportedly said at a New York conference that U.S. oil production will slow if the nation sees “prices in the lower $70s over a period of six months….People have leased rigs. They have rented them for the year and so forth. But you’d start to see an impact.”

The Morning News reported that so far, the Saudis have wiped “hundreds of billions of dollars in equity value from the market capitalization of U.S.-traded securities.” 

Saudi Arabia is able to produce oil for around $20 per barrel, and then sell it around the world for a significant profit. For the past 10 years, global consumers have paid around $100 per barrel for oil. The nation’s economy is wholly dependent on this price gap. In order to hurt U.S. oil producers and force them out of the market, the Saudis have recently began selling their barrels at a lower price.

Saudi Arabia similarly flooded the oil market in the mid-1980’s and the effect was devastating on U.S. oil production. Texas, where much domestic production occurred, was hit particularly hard. 

Should U.S.-based oil companies continue to cut back on exploration, Texans could face layoffs across the board and a slump in the state economy. 

Given that the current domestic energy explosion is technology-driven, it could help cushion Texas from a 1980’s-type bust. Fracking technology — which involves blasting water, sand, and other chemicals deep into the ground the bring up oil and gas — is expensive, but the technique has allowed producers to become partially resilient to fluctuations in oil prices, according to USA Today

Diversification in the Texas economy has also helped prevent economic depression. 

In recent years, Texas’ economy has expanded far beyond oil and gas. The state has become a leader in the industrial, technology, and manufacturing industries — just to name a few. 

Follow Kristin Tate on Twitter @KristinBTate.