http://www.nytimes.com/2015/03/01/opinion/sunday/as-oil-prices-fall-houston-shudders.html?ref=opinionAs Oil Prices Fall, Houston Shudders
By MIMI SWARTZFEB. 28, 2015
HOUSTON — LATELY — very lately — I’ve started to enjoy driving by my neighborhood Kroger again. The boldly colored curbside sign has been showing an uptick in the price of gas in the last few weeks, from $1.75 a gallon to $1.91 to $2.11. In fancier parts of town, I’ve even seen it hit $2.50.
If I lived in Kansas or New York or California, this price rise would not be particularly good news. But I live in Houston — the energy capital of America, if not the planet — where even this tiny increase is cause for optimism. Maybe, I think, it won’t be so bad this time, “it” being the predicted downturn that always comes when oil prices start to teeter.
Despite well-intentioned talk by civic leaders about economic diversification, and by the oil companies about their “risk management” strategies, the inevitable highs and lows of the energy business continue to dominate my adopted hometown, not just economically but emotionally. Like a lot of Houstonians, I, for instance, have no personal stake in the business — no oil leases, no dividend coupons, no piece of a deal in Kazakhstan or even South Texas — but over the years I have grown accustomed to the dramatic highs and lows that cause tectonic shifts in this city’s identity.
I arrived in Houston during the oil boom of the late-1970s, when the Texas I had grown up in was only a few decades removed from backwater status. (Jett Rink, the rude, crude wildcatter James Dean played in the 1956 film “Giant,” based on the novel by Edna Ferber, did not spring entirely from her imagination.) But then, suddenly, skyscrapers by the likes of Philip Johnson and I. M. Pei started rising all over town. At Tony’s restaurant, local notables hosted everyone from Mick Jagger to Princess Grace to Ernest Borgnine. The University of Houston even started a creative-writing program, a sure sign of the end of hickdom if ever there was one.
No one cared that the freeways were clogged — frequently with émigrés from Michigan — and that the air was as soupy and sticky as Beijing’s is today, because we were all just biding our time until our well came in. And it would, of course, because oil, which had risen from around $10 a barrel in 1974 to about $38 in early 1980, was sure to hit $50. And then go even higher. Forever.
It didn’t. Instead, in the middle of that year, the price started trending in the opposite direction, thanks in part to OPEC nations that decided it was time to flood the world with cheap oil. By 1986 oil was selling below $20 a barrel, and the price slumped again after a slight rise in 1987.
These were grim times, not only for people who lost their jobs at oil companies and related service industries, but for the very rich, some of whom became all too familiar with “The Chapter” — as in the section of the bankruptcy code, not a novel. The most dunderheaded savings-and-loans went under, the officers having been a little too capacious in their lending. Local banks came under the control of national behemoths, trading hands so often that it became nearly impossible to keep track of the constantly renamed skyscrapers downtown. The see-through office building — an empty one — became a common sight along freeways. And of course there was shame and embarrassment — or, in Texas parlance, the thought that maybe we had gotten a little too big for our britches.
As the narrative goes, chastened civic leaders encouraged the rest of the populace to pull themselves up by their bootstraps and diversify the economy. In fact, the next few upward and downward cycles were greeted here with welcoming shrugs and mild annoyance, respectively, rather like a longtime neighbor who drops in for coffee on a busy morning. There was a pretty bad “correction” in 2008-9 when oil plunged to $40 or so from nearly $140, but Houston came out O.K.
Fortunately for Houston, and thanks largely to local know-how, came the combining of hydraulic fracturing and horizontal drilling, and the next big boom was on.
Once again, the people who stood to profit most from high oil prices went nuts, but in a more sophisticated, understated way. They bought Teslas instead of Rolls-Royces, and second homes in Nantucket instead of Aspen, maybe because being Yankee-averse was so 1970s. Or maybe they simply represented a newer generation with less to prove, far removed from the curse of Jett Rink. At long last, local philanthropists spent their money not just on symphony halls and art museums — to show outsiders that we, too, had culture — but on parks and public health, making Houston a better place to live for those of us who stuck around.
There are more newcomers than ever: about 1,550 new people a week by the latest reckoning, clogging the freeways and turning strip centers into international bazaars. These folks aren’t just from Detroit: At the Ikea on any given Sunday, a Texas accent can’t even begin to hold its own against Spanish, Chinese, Persian, Vietnamese, Arabic, French and the lilting intonations of several African nations.
THEN, late last summer, the inevitable happened, as oil began another downward skid, because OPEC was, once again, refusing to cut production, playing a game of chicken against those who could not afford to drill as the price dropped — including, but not limited to, independent Texas producers. What’s followed has been a collective intake of breath, accompanied with Jett Rink-style grimacing, and a lot of belt tightening. Familiar headlines like “Oil Job Losses Strike Home” and “Oil Woes Hit Home,” are back on The Houston Chronicle’s front page.
Layoffs have begun apace, particularly at oilfield service companies. Halliburton, for instance, recently announced that about 6,400 people would soon be losing their jobs. Schlumberger said it would lose 9,000 workers. “Talk about a walk of shame,” one of them told The Chronicle, after being ordered to clean out his desk and exit the building.
Suddenly, too, announced donations to charity look a little iffy — “they’re just pledges” one fund-raiser noted — and restaurant expansions and mansion additions have been put on hold. Houston’s traditionally cheap home prices, which last year were skyrocketing, are expected to level off, though it is still possible to witness desperate, multiple bids — in cash, of course — for the remaining River Oaks mansionettes currently on the market.
Once again, it’s a little easier to get a table in a hot Houston restaurant after 6 p.m. — assuming, of course, that you have the money to pay the tab.
Pretty much one topic of conversation dominates: How long will the bad times last this go-round? The optimists here expect oil prices to rise by the end of the year. That they have already gone up a few percentage points in the last few weeks is maybe because of a) economic growth in Europe; b) more gasoline use as the start of spring approaches; c) the laws of supply and demand; d) production issues in Iraq and Libya; e) all of the above; or f) so much whistling in the dark.
As Jim Krane, a longtime journalist and now an energy expert in the Baker Institute for Public Policy at Rice University, told me, we are witnessing, yet again, a classic reaction to low prices. “Consumers are demanding more cheap gas, and producers are less inclined to supply it,” he said. “As those realities filter down to the level of your corner gas station, you might see the station manager taking out his ladder and putting up some bigger numbers on his roadside sign.”
Jim, ol’ buddy, I can hardly wait.
