That which was true for Isaac Newton also holds sway in the oil patch: What goes up, must come down.
Or does it?
A generation ago the price of oil was approaching $40 — about the price in today's dollars of the $100 milestone reached in early January and again last week — and the one nugget of certainty buried in the back of every mind was that it would not stay there. Sure enough, oil began to slide, dropping below $20 by the mid-1980s, and the Houston economy tumbled along with it into the gloom of lost oil jobs, bankruptcies, unemployment and foreclosure.
But what if today's peak oil prognosticators are right, and there will be no significant tapering of demand or growth in supply? And if that's true, what does it mean for a city whose fortunes have always been linked to a price graph and the whims of traders who traffic in black gold?
Perhaps less than conventional wisdom would suggest. Houston may never again fully feel the dizzying flush of boom or the agony of bust.
"This is a dramatically different place than when Houston was riding the oil boom in the 1970s," said Rice University sociologist Stephen Klineberg, who has been profiling and surveying Houston every year since 1982, just months before the oil business went into one of its periodic death spirals.
"Back then, Houston was a frolicking adolescent kid who couldn't not make money. Now the city has grown up."
Klineberg speaks of a cultural metamorphosis, an aging Anglo population, a decline of the oligarchs and a rise in cosmopolitan connectedness to the world.
Economists use a different vocabulary, but their metrics tell a similar story — one of expanding business sectors un- related to energy that have transformed the world's energy capital into a more financially sophisticated place. Economic diversification has paralleled the city's changing complexion, from large corporate and medical employers to the thousands of small businesses serving an immigrant population that was much smaller a generation ago.
It used to be said that Houston was "counter-cyclical." When things were going bad elsewhere (a state of affairs that often included high energy prices), Houston would thrive. Today, not so much.
Case in point: Even as oil climbed toward $100, job growth in the Houston area in December was just 2.4 percent higher than it was a year earlier, compared with a robust 4.8 percent growth rate in late 2006.
And the Houston Association of Realtors reported last week that single-family home sales in the area fell 12 percent in January compared with a year earlier, as credit tightened and consumers grew more skittish about possible recession.
Cushion, to a point
Being the epicenter for the world's oil and gas business helps cushion Houston from some economic blows, experts emphasize. But one can no longer assume a rising energy tide will float all boats.
"There are lots of things going on that are relatively insensitive to energy ... ," said Skip Kasdorf, head of economic research for the Greater Houston Partnership. "That also means we're more susceptible to what happens to the national economy."
This new fact of life has not exactly become common know- ledge. Something as predictable about Houston as bad weather and worse mosquitoes are the periodic dispatches from out-of-town journalists still trading on the stereotype that a spike in oil necessitates a binge in over-the-top consumption and growth.
Just last March the New York Times reported from Houston that "the good times are back," but failed to mention both a long period of muscling up by other sectors of the local economy as oil stayed under $20, as well as the more recent economic slowdown despite crude's record climb.
"In New York, their presumption is that Houston is bursting at the seams," said local economic guru Barton Smith, who heads the University of Houston's Institute for Regional Forecasting. "But we're not growing as fast as Phoenix or Atlanta, or even Dallas or Austin. People ask how that can be with $95-a-barrel oil. We're a different economy."
In 1982, more than 80 percent of the "base economy" of the Houston metropolitan area was energy-related, Klineberg said. Today it's about half.
Not only did energy provide many of the jobs, but those who served the industry often did not bother pursuing other customers. When oil sneezed, Houston caught a cold.
Huge job losses
And the ailment in the 1980s brought Houston the worst regional recession of any part of the country at any time since World War II, Klineberg said, with Houston losing more than 100,000 jobs in just over a year. The misfortunes of the energy industry were compounded by real estate woes spawned by overbuilding.
"We doubled the entire amount of office space from 1980 to 1984," Smith said. "That pain lasted for a decade. We have nothing near the type of excess supplies that we had in the 1980s. We had almost 250,000 vacant housing units in 1982. There was so much excess supply of housing, we could not have absorbed it even if we had not had a drop in oil prices. We don't have anything near that today."
Like so many local business executives at the time, Ray Hankamer found out the hard way about having a lot of what nobody wanted. His management company ran a string of hotels. He had just finished a project backed by a French company when oil went south.
Down he went with it. Occupancy rates plummeted from 78 percent to the low 40s, and so did any hope of profitability as new hotels opened and rooms were all but given away. Hankamer lost 13 of his 14 properties.
That was then.
"There is a whole lot more stability than there was in the 1980s," said Hankamer, whose commercial real estate brokerage specializes in hotel properties. "There is lot more discipline by lenders and builders and equity investors. People are real careful not to build something that is not fully needed."
The hotel industry learned a lesson, he said, as did the city's entire business culture. To rely on oil was to play Russian roulette with three loaded chambers. Houston not only had to change its way of doing business, it had to change what business it did.
And so was born the Houston Economic Development Council, established to broaden the economic base.
How well it succeeded, as well as the Greater Houston Partnership which absorbed it along with the Chamber of Commerce, is a matter for historians to debate.
There is no doubt that some active efforts, such as the expansion of the port facilities and the Texas Medical Center, had an effect. But so did the ongoing waves of immigration, much of it unanticipated.
A consistently affordable cost of living also has helped Houston keep growing despite oil's ups and downs.
Seeing prosperity
And so Houston goes on and on, adding more than 100,000 new souls every year.
Hankamer is among many who predict a long period of relative prosperity.
"Houston was a one-trick pony" in the 1980s, Hankamer said. "Today there are so many more things driving the economy that are not going to be seriously affected by an oil shock. Not that I think we are going to see one. China and India have such a huge energy demand, and we didn't have that demand back then."
Dan Pickering, president of Tudor Pickering, an investment and research firm, also sees little likelihood that the price of crude will plummet, though it may drift.
"I'm skeptical that $100 a barrel is sustainable ... but the industry doesn't need that," he said. "We are going to do just fine."
Or does it?
A generation ago the price of oil was approaching $40 — about the price in today's dollars of the $100 milestone reached in early January and again last week — and the one nugget of certainty buried in the back of every mind was that it would not stay there. Sure enough, oil began to slide, dropping below $20 by the mid-1980s, and the Houston economy tumbled along with it into the gloom of lost oil jobs, bankruptcies, unemployment and foreclosure.
But what if today's peak oil prognosticators are right, and there will be no significant tapering of demand or growth in supply? And if that's true, what does it mean for a city whose fortunes have always been linked to a price graph and the whims of traders who traffic in black gold?
Perhaps less than conventional wisdom would suggest. Houston may never again fully feel the dizzying flush of boom or the agony of bust.
"This is a dramatically different place than when Houston was riding the oil boom in the 1970s," said Rice University sociologist Stephen Klineberg, who has been profiling and surveying Houston every year since 1982, just months before the oil business went into one of its periodic death spirals.
"Back then, Houston was a frolicking adolescent kid who couldn't not make money. Now the city has grown up."
Klineberg speaks of a cultural metamorphosis, an aging Anglo population, a decline of the oligarchs and a rise in cosmopolitan connectedness to the world.
Economists use a different vocabulary, but their metrics tell a similar story — one of expanding business sectors un- related to energy that have transformed the world's energy capital into a more financially sophisticated place. Economic diversification has paralleled the city's changing complexion, from large corporate and medical employers to the thousands of small businesses serving an immigrant population that was much smaller a generation ago.
It used to be said that Houston was "counter-cyclical." When things were going bad elsewhere (a state of affairs that often included high energy prices), Houston would thrive. Today, not so much.
Case in point: Even as oil climbed toward $100, job growth in the Houston area in December was just 2.4 percent higher than it was a year earlier, compared with a robust 4.8 percent growth rate in late 2006.
And the Houston Association of Realtors reported last week that single-family home sales in the area fell 12 percent in January compared with a year earlier, as credit tightened and consumers grew more skittish about possible recession.
Cushion, to a point
Being the epicenter for the world's oil and gas business helps cushion Houston from some economic blows, experts emphasize. But one can no longer assume a rising energy tide will float all boats.
"There are lots of things going on that are relatively insensitive to energy ... ," said Skip Kasdorf, head of economic research for the Greater Houston Partnership. "That also means we're more susceptible to what happens to the national economy."
This new fact of life has not exactly become common know- ledge. Something as predictable about Houston as bad weather and worse mosquitoes are the periodic dispatches from out-of-town journalists still trading on the stereotype that a spike in oil necessitates a binge in over-the-top consumption and growth.
Just last March the New York Times reported from Houston that "the good times are back," but failed to mention both a long period of muscling up by other sectors of the local economy as oil stayed under $20, as well as the more recent economic slowdown despite crude's record climb.
"In New York, their presumption is that Houston is bursting at the seams," said local economic guru Barton Smith, who heads the University of Houston's Institute for Regional Forecasting. "But we're not growing as fast as Phoenix or Atlanta, or even Dallas or Austin. People ask how that can be with $95-a-barrel oil. We're a different economy."
In 1982, more than 80 percent of the "base economy" of the Houston metropolitan area was energy-related, Klineberg said. Today it's about half.
Not only did energy provide many of the jobs, but those who served the industry often did not bother pursuing other customers. When oil sneezed, Houston caught a cold.
Huge job losses
And the ailment in the 1980s brought Houston the worst regional recession of any part of the country at any time since World War II, Klineberg said, with Houston losing more than 100,000 jobs in just over a year. The misfortunes of the energy industry were compounded by real estate woes spawned by overbuilding.
"We doubled the entire amount of office space from 1980 to 1984," Smith said. "That pain lasted for a decade. We have nothing near the type of excess supplies that we had in the 1980s. We had almost 250,000 vacant housing units in 1982. There was so much excess supply of housing, we could not have absorbed it even if we had not had a drop in oil prices. We don't have anything near that today."
Like so many local business executives at the time, Ray Hankamer found out the hard way about having a lot of what nobody wanted. His management company ran a string of hotels. He had just finished a project backed by a French company when oil went south.
Down he went with it. Occupancy rates plummeted from 78 percent to the low 40s, and so did any hope of profitability as new hotels opened and rooms were all but given away. Hankamer lost 13 of his 14 properties.
That was then.
"There is a whole lot more stability than there was in the 1980s," said Hankamer, whose commercial real estate brokerage specializes in hotel properties. "There is lot more discipline by lenders and builders and equity investors. People are real careful not to build something that is not fully needed."
The hotel industry learned a lesson, he said, as did the city's entire business culture. To rely on oil was to play Russian roulette with three loaded chambers. Houston not only had to change its way of doing business, it had to change what business it did.
And so was born the Houston Economic Development Council, established to broaden the economic base.
How well it succeeded, as well as the Greater Houston Partnership which absorbed it along with the Chamber of Commerce, is a matter for historians to debate.
There is no doubt that some active efforts, such as the expansion of the port facilities and the Texas Medical Center, had an effect. But so did the ongoing waves of immigration, much of it unanticipated.
A consistently affordable cost of living also has helped Houston keep growing despite oil's ups and downs.
Seeing prosperity
And so Houston goes on and on, adding more than 100,000 new souls every year.
Hankamer is among many who predict a long period of relative prosperity.
"Houston was a one-trick pony" in the 1980s, Hankamer said. "Today there are so many more things driving the economy that are not going to be seriously affected by an oil shock. Not that I think we are going to see one. China and India have such a huge energy demand, and we didn't have that demand back then."
Dan Pickering, president of Tudor Pickering, an investment and research firm, also sees little likelihood that the price of crude will plummet, though it may drift.
"I'm skeptical that $100 a barrel is sustainable ... but the industry doesn't need that," he said. "We are going to do just fine."
Source: Houston Chronicle|By MIKE TOLSON
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