By Ana Campoy and Lynn Cook, WSJ
Corpus Christi Boomed as Energy Jobs Expanded, but Signs of a Downshift Create Worries
Texas—This Gulf Coast city has ridden a rocket of a rebirth in recent years, propelled by a more than 30-fold increase in oil production at the nearby Eagle Ford Shale since the beginning of 2010.
Corpus Christi’s economy went from stagnant to zooming, growing by 8% in 2012 and 6% in 2013. Workers flush with cash have helped drive average home prices to nearly $200,000 from $150,000 four years earlier.
The formerly sleepy port is bustling with crude shipments destined chiefly for refineries elsewhere in the U.S. and Canada. An old grain elevator now unloads sand used to crack shale formations through fracking and release oil and gas. Officials are building the first new public dock in more than 20 years.
But anxiety is creeping in now that oil prices have plummeted to five-year lows amid a global glut, threatening the domestic energy revolution that has brought this city of 316,000 residents a taste of prosperity. Some beneficiaries of the boom already are starting to feel a downshift.
“I’m concerned it’s going to stay slow,” said Randall Witten, a former car salesman who moved here three years ago to drive equipment to drilling sites. Business already has slackened noticeably in the past couple of months, said Mr. Witten, 41 years old.
Analysts say it is too early to predict how hard the fall in oil prices will hit Texas, but few dispute there will be an impact. The oil and gas industry generated 13.5% of economic activity in the Lone Star state last year, according to researchers at the Federal Reserve Bank of Dallas.
If prices stay low, Texas could be headed for a recession even as the rest of the U.S. benefits from cheaper fuel, the chief U.S. economist for J.P. Morgan Chase wrote clients Thursday.
An energy-sector retrenchment would reverberate throughout the Texas economy, which has been boosted by jobs to house, clothe and feed the industry’s workers. The state government’s $100 billion annual budget, which has seen a windfall from energy production taxes in recent years, could be hit as well.
There already are signs of a pullback, with the price of U.S. oil about $55 a barrel this week, down from $107 in late June. From Houston to Midland, oil-exploration companies are starting to scale back drilling plans for next year. Oil-field service companies that provide the labor and machinery to frack wells, such as Halliburton Co. and Schlumberger Ltd. , are laying off employees.
The number of oil rigs in Texas, which had grown 80% since the start of 2010, is falling, with five idled last week—though at 895 rigs, it remains higher than at this time last year.
Business leaders are bracing for a slowdown, but say the city is in a much better position to weather any bust than in the 1980s, when collapsing oil prices put the local economy into the doldrums for years.
The city, like the state, is less dependent on oil than decades ago, they add. They point to a growing medical center, a $41 million-plus water park and resort set to open next summer, and a federally designated drone research facility they hope will make Corpus Christi a hub for that industry. The city also has long-standing economic drivers, including military installations and millions of tourists who visit its beaches annually.
“We will continue to have a healthy economy,” said Mayor Nelda Martinez.
Still, some economists say that a downturn in drilling would be deeply felt. At least half of the new jobs in the region are attributed to energy production, said Jim Lee, an economics professor at Texas A&M University, Corpus Christi. If drilling halts, “we’re going to stop growing,” he said.
The boom has triggered an expansion of retailers—from big-box stores to jewelry shops—seeking to tap newly flush citizens. That in turn has given tourists like Laura Treviño, from the Mexican city of Monterrey, more reasons to travel to Corpus Christi and shop. “There wasn’t much here before but now it’s full of stores and restaurants,” said Ms. Treviño, 42.
At Ed Hicks Imports Ltd., the local Mercedes-Benz dealership, roadsters and sedans with big red ribbons on their hoods sit in a brand-new showroom. Sales are up 45% since 2011, said general manager Charles Hicks. “We see faces that we’ve never seen before,” he said.
But the boom has been biggest at the Port of Corpus Christi, where outbound crude shipments accounted for more than a quarter of the 90 million tons of cargo that have moved through the port this year.
Meantime, the surge in natural gas production in Eagle Ford Shale is attracting a new kind of customer: foreign manufacturers seeking stable energy supplies. They have committed billions of dollars for new plants, an investment that port officials hope will help the region better navigate volatile oil prices.
Voestalpine AG , an Austrian steel company, is constructing a $740 million facility along the port’s ship channel that will transform iron ore pellets into a higher-grade raw material used to make cars and airplanes. The process requires huge amounts of energy—the new plant will use roughly one-tenth of the natural gas currently consumed by the entire nation of Austria, the company estimates from gas.
Voestalpine was attracted to Corpus Christi due to its deep-sea access and proximity to South Texas’s prolific gas wells, something that he doesn’t see changing with fluctuating oil prices.
“We are convinced we will be here in the long run,” said Matthias Pastl, a Voestalpine executive. The company signed an 80-year lease for its Texas site.
This article originally appeared on the WSJ with the title Plunge in Oil Prices Brings Jitters to Texas City