Some of the Houston chamber-of-commerce boosters frequently claim that the area’s economy has diversified away from oil and gas.  While there has been some nascent diversification, University of Houston economist Bill Gilmer reminded us last week how dependent our local economy is on the oil and gas exploration and petrochemical industries.

In the presentation of his 2020 projections, he warned flat oil prices and waning downstream investments are likely to moderate regional economic growth.

Some of the Houston chamber-of-commerce boosters frequently claim that the area’s economy has diversified away from oil and gas.  While there has been some nascent diversification, University of Houston economist Bill Gilmer reminded us last week how dependent our local economy is on the oil and gas exploration and petrochemical industries.  “Houston’s economy might not be as hot as it looks — and still needs oil” Houston Chronicle, November 19, 2019

In the presentation of his 2020 projections, he warned flat oil prices and waning downstream investments are likely to moderate regional economic growth.

Historically, the City of Houston’s sales tax receipts have been highly correlated to the price of oil.

If Gilmer is right and growth moderates over the next several years, it will prove problematic for the regional municipalities which rely on sales tax receipts as a key part of their funding streams.  It will be particularly hard on the City of Houston, which is already experiencing an exodus to its suburbs and is struggling with a structural deficit and pressing needs for additional infrastructure investment.  It should also be a caution light for Metro, which is highly dependent on sales tax revenues.

Houston has been incredibly blessed to have been the energy capital of the world for the last century.  We have weathered many boom-and-bust cycles in the industry that have been reflected in our regional economy.  But something feels different about the current environment.

I think those who predict a rapid decline in the use of fossil fuels have overstated their case.  We will be burning fossil fuels, and especially natural gas, for many decades, if not longer.  But it does seem likely that the world in the process of weaning itself off fossil fuels.

What is the future of Houston’s economy in that world?  That is the question we need to be asking ourselves.