Remembering the oil bust: Coronavirus isn’t the first Houston meltdown we’ve seen [Opinion]
Separating the twin effects of virus containment and oil markets is not easy. All of us old timers who were in Houston during the 1985-86 oil industry meltdown have been around this block before. It turns out that many of the comments and questions coming up today are not so different from what our crew at Rice Center, along with so many others, dealt with in those years. Below I have responded to some common ones from friends, family and colleagues:
“Oil is worse than this virus!”
Many small and medium business owners and operators could probably echo this plaintive comment. Parsing the signals, it is likely to be true. There is an end game on the health front, although timing is unclear. The intense research that is underway will yield the tools we need for treatment and prevention. The collapse in oil prices has the potential to last longer and exert deeper, structural implications.
Given these realities, we can look back to the initiatives rooted in our past experience. The construction and opening of the Wortham Theater — such an important banner in those years; the beginnings of expansion at the Museum of Fine Arts, the Texas Medical Center and Port of Houston and Ship Channel — all were widely noted as marvels of resilience. They set Houston apart, got attention and commanded respect. Add Hurricane Harvey rebuilding to the picture and an uplifting question becomes: what new accomplishments will owe their existence to these current trials?
“Will we lose as many jobs as in the ‘80s?”
The most straightforward answer is that we simply don’t yet know. The Greater Houston Partnership and any number of local and state-wide groups are focused on employment. One good lesson from the past is that we were better at counting job losses than we were in anticipating job gains. Cost of living including housing, adaptability of people and businesses, an enormous talent pool and financial liquidity, our rich and accessible natural setting — the basic building blocks for recovery on all fronts is in place.
An honest assessment is that many of the job losses that would have accompanied a sharp downsizing of the oil, gas and other energy and energy-related businesses are already happening. The retail and service sectors, which normally would fall into the “indirect effects” column are, frankly, getting hammered. This means that the inevitable downsizing in energy will burden a post-virus comeback. We should recognize this possibility and prepare as best we can.
“This time is different because we had no warning.”
True, or false? Since 2016, all of the news and chatter on the Organization of Petroleum Exporting Countries, OPEC, was that the engineered price drop had not generated the intended effects. Those wily U.S. shale players just bounced back, challenging the “OPEC+” biggies, Saudi Arabia and Russia. All of the rumors were that another price war or event could launch. The assumption was that the Saudi Aramco initial public offering was too important. That assumption ignores the long game. And anyway, prices had drifted lower with weakening of a big demand leg, China, well before a novel coronavirus became news.
Another lesson black swans are the white ones that we just miss or choose to ignore.
“Will oil make a comeback (and when)?”
This is a deeper and more complicated question. One challenge is the industry itself, and its tendency to move to more expensive cost structures during growth phases even as technology and entrepreneurial spirit work to improve efficiencies and cost management. A complex web of forces brought the industry to its current point and we are only beginning to analyze what the context may look like for the rest of 2020 and beyond.
Lurking in the background is the larger, multi-dimensional enquiry for Houston and much of Texas — the future of fossil fuels altogether. A push is underway to use the current crisis mix of virus, economic dislocation and oil market ructions to hasten “energy transition” away from fossil fuels. A corollary question is whether the “end of oil” would not be good for Houston, anyway.
A widespread, and growing, view is that Houston is best-positioned to lead energy transition conversations. Leading that conversation also means managing the “spin” and gracefully introducing much-needed doses of reality. A great deal needs to be done to better understand costs and funding, readiness in terms of environmental and safety protections, and, not least, supporting supply chains. Does it make any more sense to confer dependence on China for “green energy” supply chains than to depend on Middle East oil? How much will it cost to “re-shore” at least some manufacturing of renewables and batteries for a “Made in America” stamp? An equally tough gap in understanding is the importance of oil for ensuring lower cost natural gas. Scale matters, all around.
“Where do we go from here?”
As decision makers begin to parse possible future pathways, we can think about several things. One is the Texas Medical Center. Medical R&D here could help lead us out of the current health crisis and “harden” society for the long term. Our ports and shipping will recover and benefit even if we shift paradigms from “globalization” to “regionalization.” We certainly can push for sound policy and regulation on the energy front. We can consider where we’ve been and how we recovered and progressed since 1986.