The Texas Petro Index (TPI), an indicator of the health of the state's oil and gas industry compiled by a Texas Alliance of Energy Producers economist, posted its first decline in two and a half years due to declining crude prices and continuing natural gas price weakness.
Expansion of the industry faltered in June, with the TPI dropping 1.1 point to 270.4, the Alliance said.
"Although a number of core industry economic indicators remain strong -- drilling permit applications, the rig count and industry employment, for example -- the decline in crude prices, weak natural gas pricing, and the impact on the value of Texas production has taken the index down for the first time in this current cycle," said Alliance economist Karr Ingham. "Lower crude oil prices, combined with natural gas wellhead prices that have trailed prices a year ago by more than 40%, are undercutting the value of Texas-produced oil and gas."
Ingham had calculated the TPI at 271.4 for three consecutive months, and then an upward revision in Texas crude oil production raised the May index to 271.5 before the June decline. But the index appeared to flatten beginning in April, a plateau easily attributed to weaker crude prices, he said.
Estimated Texas natural gas output totaled more than 558.6 Bcf in June, a year-over-year monthly decline of about 10.5%. With natural gas prices in June ($2.52/Mcf) trailing prices in June 2011 ($4.27/Mcf) by about 41%, the value of Texas-produced gas declined in June about 47.2% to about $1.41 billion. Texas producers recovered an estimated 3.48 Bcf of gas this year through June, about 300 MMcf less (a decline of 8%) than in the first half of 2011.
Crude oil wellhead prices in Texas continued to slide in June, averaging $79.08/bbl, down $11.87 since May and $13.59 less than in June 2011. Crude oil prices in Texas this year through June averaged $94.44/bbl, down 39 cents, marking the first time since January 2009 that year-long oil prices averaged less than in the same month in the previous year, Ingham said.
Prices have since recovered a significant portion of what was lost from March-June, but it might not be enough to continue the rapid pace of growth in industry activity in Texas, Ingham said, noting that the average monthly rig count is July has declined by some 22 rigs. "The question is, are crude oil prices stabilizing at a level high enough to sustain the high levels of activity generated in this expansion cycle, or are we witnessing the onset of a true slowdown to one degree or another in industry activity? The concern is obvious.
"The pace of national and global economic recovery, which had been strengthening in the latter half of 2011 and first quarter of 2012, began to weaken appreciably in the second quarter. The European debt crisis worsened, and in fact, Great Britain announced that the country had receded into another round of recession. The U.S. employment picture worsened in terms of job growth, and the unemployment rate reversed course and began to increase again.
"The U.S. stock market lost everything it had gained since the beginning of the year, and growth rates in Asian economies -- critical to energy pricing support -- appeared to begin to slow dramatically. At the same time, the U.S. has increased production and supply. This is not a recipe for upside support for crude oil and natural gas prices."
The TPI is a composite index based upon a group of upstream economic indicators. The TPI reached a low of 188.5 in December 2009, following a peak of 287.8 in October 2008.
One year ago the TPI charted robust oil and gas industry job growth in the state. An estimated 224,200 people were employed by Texas' oil and gas industry in June 2011, a nearly 15% increase compared with June 2010, according to the TPI. "Post-recession job growth in Texas has been among the strongest in the nation, and the oil and gas industry in Texas deserves most of the credit for that," Ingham said at the time (see Daily GPI, July 28, 2011).
According to the latest TPI, the number of Texans estimated by the Texas Workforce Commission to be on oil and gas industry payrolls totaled a record 251,600, about 12.1% more than in June 2011. Oil and gas industry employment in Texas this year through June averaged 248,217, about 15.3% more than in first-half 2011. Industry employment in Texas dropped to a low of 179,200 in October 2009 after reaching a record 222,300 in October 2008, during the previous growth cycle.
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