The sharp contraction in the Texas oil and gas economy began to ease as 2009 came to an end, but uncertainty persists about the future of the state’s energy industry with the oversupply of domestic natural gas, a petroleum economist said last week.

“We’re beginning to see the proverbial light at the end of the tunnel,” said Karr Ingham, who compiles the Texas Petro Index (TPI), which tracks the state’s energy economy on a month-to-month basis. “Higher crude oil prices have spurred a distinct turnaround in the drilling rig count and a steady uptick in drilling permit activity since a mid-2009 low.”

The TPI, a service of the Texas Alliance of Energy Producers, is a composite index based upon a group of upstream economic indicators. At year-end 2009 the TPI had declined to 188.4, down 34% from a peak of 285.4 achieved in September and October 2008.

“The hope is the resurgence of oil-directed drilling activity will be enough for the economic contraction to continue to ease. But how far a recovery of crude oil prices can take us is an open question, when natural gas accounts for most of the value created by Texas producers,” Ingham said.

According to the TPI 2009 market indicators:

Natural gas prices have improved since mid-year 2009, but in December they still averaged only $4.48/Mcf, which is about 25% below 2008 prices, he noted. Crude oil prices, however, averaged $71.8/bbl in December, compared with $37.69 in December 2008.

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