Is the recent economic growth of Texas driven mainly by fracking?

by on March 10, 2014 at 4:12 pm in Current Affairs, Economics | Permalink

Scott Sumner reports:

So the Texas oil boom was quite recent, beginning about 2010.  Now let’s look at the population growth figures before and after the recent boom:

2005-06:  2.55%

2006-07:  2.01%

2007-08:  2.02%

2008-09:  2.02%

2009-10:  1.85%

2010-11:  1.62%

2011-12:  1.52%

2012-13:  1.50%

Where is all the population growth from fracking?

And this:

Texas’s population grew at roughly twice the national rate for decade after decade, even as oil output was declining sharply.

The post makes several other points of interest.  I would stress that Texas has developed at least five highly successful urban clusters, namely Houston, Dallas-Forth Worth, San Antonio, Austin, and to some extent El Paso or I would say El Paso-Juarez.  For standard reasons of economic geography, such clusters are especially like in a larger state.  Furthermore such clusters can be driven, in part, by relatively small differences in underlying state policy.  Maybe Texas policy is only a little bit better than in some other states, but that small underlying difference can translate into a big change in final outcomes.  Fracking is likely a complementary force here, but it is not the center of the story.

James Clary March 10, 2014 at 4:16 pm

Tyler,

Perhaps I have missed something. What reasons of economic geography drive those large urban geographies to form in a large state? I have not seen that explicitly stated before.

Jim Clary

Steve Sailer March 10, 2014 at 8:28 pm

Texas has relatively poor soil for growing crops, so there wasn’t much reason for the population to spread itself out evenly and moderately densely like in Iowa, where a lot of food can be grown on just about every acre.

Silas Barta March 11, 2014 at 2:55 pm

Then why isn’t the population spread out evenly across *east* Texas?

Craig Rachel March 10, 2014 at 4:29 pm

Production increases don’t happen overnight and do not signify the beginning of the shale oil boom in Texas. The Barnett’s rig count started increasing significantly as early as 2002. Going back only to 2005-06 he has certainly missed catching the “beginning”.

William Wright March 10, 2014 at 10:12 pm

The Barnett Shale is a gas play. The oil boom is in the Eagle Ford Shale, and that didn’t get going until 2010 or 2011.

Craig Rachel March 11, 2014 at 9:12 am

The Barnett has a combo window. Also, there are more horizontal oil plays beyond the Eagle Ford, the Wolfcamp/Sprayberry. But all this is beside the point, the oil boom in Texas did not start in 2010

William Wright March 11, 2014 at 9:36 am

If you want to talk about a fracking boom, I would agree that it predates 2010.

prior_approval March 11, 2014 at 12:22 am

Fracking is for both, and the price of oil has only been rising enough recently to make it profitable to use the technology for oil.

In 2005, WTI cost between 41 and 71 dollars a barrel – a price far too low to make fracking profitable. Which is one basic reason why fracking was a gas play at the time.

dirk March 10, 2014 at 5:01 pm

His analysis ignores that much of the growth in the oil industry in Houston has to do with the global oil boom that began in 2003. Fracking is only part of the story and focusing of fracking taking place within the state of Texas is particularly silly. Houston is a technology hub for the global energy industry and workers in Houston may be working on projects in Africa, S America, Africa, Mexico, etc.., not to mention the deep water Gulf of Mexico.

It’s about the price boom beginning in 2003, stupid, not oil production in Texas. What the industry makes is technology, not oil.

Bill March 10, 2014 at 6:30 pm

Yeah, you could say that the industry benefits from a strong cartel, OPEC, and sanctions against some producers who have to shut in their oil because they cannot sell it.

Wow, that’s a Texas economic miracle.

dirk March 10, 2014 at 6:55 pm

It’s pretty clear that the oil price boom of the past decade is a demand side story.

Bill March 11, 2014 at 8:22 am

Sorry, but it;s a cartel. You wouldn’t need a cartel if it were demand constricted.

Does OPEC get together just to have tea?

William Wright March 11, 2014 at 9:32 am

Producers who have to shut in they’re oil because they can’t sell it? What is that supposed to mean?

ummm March 10, 2014 at 5:12 pm

looks like noise .5% isn’t enough to draw conclusions

dan1111 March 11, 2014 at 10:08 am

The rate of population growth decreased by 41% over the period shown. Does that look more impressive?

Boonton March 10, 2014 at 5:30 pm

I thought the recession caused illegal immigration to take a big hit. I’m guessing frackers employ few illegals but TX population would be very sensitive to a shock to illegal immigration.

yang March 10, 2014 at 5:44 pm

San Antonio and Austin are growing into a single megacity.
Fastest growth is between them.

Sean Brown March 10, 2014 at 5:45 pm

Tyler the positive impact of fracking is more about wealth effects than driving population growth. Most private/drillable land in Texas is owned by Texans (I think). 5-10 years ago, much of this was considered scrubland or marginal ranchland. For purposes of fracking, per-acre valuations go up exponentially, especially when “good” 3D seismic data emerges and particularly when drilling yields good wells on nearby properties.

Sean Brown March 10, 2014 at 5:46 pm

Also fracking and its supply chain have created mid/high-paying jobs for people whose next-best alternative does not pay as highly.

Wonks Anonymous March 10, 2014 at 6:04 pm

Cowen quotes Sumner on the most recent population growth figures, but Sumner has other numbers going back to the 70s. So yes, it was growing faster even before the recent boom.

dirk March 10, 2014 at 6:29 pm

The price of oil collapsed in the mid 80s and the recent boom began in 2003. It isn’t clear at all from Sumner’s data that Texas population growth is not highly correlated with energy prices.

dirk March 10, 2014 at 6:44 pm

I stand corrected. The pop growth in the 90s, when oil prices were low, compared to that in the recent decade is pretty good evidence that pop growth in Texas isn’t about oil prices.

Aaron Luchko March 10, 2014 at 6:55 pm

What’s the baseline population movement?

Among big name states Texas has the lowest population density (though 2nd highest population).
http://en.wikipedia.org/wiki/List_of_U.S._states_by_population_density

Absent other factors would Texas be expected to lose population (because there’s so many people who can move out) or gain population because there’s so much under-settled territory? People talk a lot about the mass migration to the red states, but I wonder how much of that is because the blue states are generally denser with higher population.

dan1111 March 11, 2014 at 10:12 am

People haven’t been moving into the empty areas of Texas; the population growth has been centered in the major cities. Many of the rural West Texas counties have actually been losing population.

See this article, a few years old, but it makes the point:
http://www.texastribune.org/2011/02/18/minorities-drove-texas-growth-census-figures-show/

rjs March 10, 2014 at 7:06 pm

why would anyone think to connect fracking with population growth? it’s not very labor intensive..

the oi & gas industry has added about 40,000 jobs since 2010: http://research.stlouisfed.org/fred2/series/CES1021100001

RM March 10, 2014 at 7:30 pm

How much of the slower rate of growth is a result of declines in international migration? Existing Americans might still be moving to Texas at the same pre-2009 rate.

bjssp March 10, 2014 at 7:32 pm

Why does Sumner only mention oil and not natural gas?

Jason March 10, 2014 at 8:34 pm

Texas “economic miracle” starts in 2005, so it’s probably some combination of less bad housing bust and oil (and gas) boom:

http://informationtransfereconomics.blogspot.com/2014/03/the-texas-economic-miracle.html

Brett March 10, 2014 at 11:59 pm

Austin is supposedly starting to take on some of the negative features of tech clusters elsewhere: housing construction restrictions, soaring rents, etc. Granted, it’s not Silicon Valley yet, but it’s also some troubling signs – and I wouldn’t be shocked if some of the other big Texas cities started showing issues like that in the next ten years.

Brenton March 11, 2014 at 12:27 am

Maybe someone more familiar could chime in here. I’m not too knowledgeable but my understanding was that at least in the case of Houston and DFW that more housing just keeps being built at the edges of the metropolitan areas to keep up with demand, that while there may be significant restrictions on housing density, there aren’t many restrictions on building new subdivisions. And that DFW and Houston have a strong network of highways that relatively speaking keep up with the new construction. Unlike Austin that is urban sprawl without the roads to support it, only going to get worse and worse congestion.

Roy March 11, 2014 at 4:29 am

There is a big push to make Houston institute growth controls, but the groups pushing it have failed at the ballot box over and over. The main threat would be if like in Austin, the influx of newcomers was enough to push these measures over the line. The one place these groups have been most successful is the creation of “historic districts” including one to preserve a lower middle class 1950s subdivision. I hate to say this as a Houstonian, but the main thing that could save the city is to tear down enough mid century bungalows that the districts will be meaningless. There is some evidence that both developers and property owners are aware of this strategy.

There will be a vote over zoning in Houston in the next 5-10 years, the question is whether it can be defeated, as all the previous efforts were.

mpowell March 11, 2014 at 11:22 am

It’s getting more expensive in core areas, but 1) there is a huge amount of residential construction (and most of it is much more dense than pre-existing stock) going on through out the city and 2) as you get 30 min outside of the city the prices drop dramatically. The issue is that as population grows there will be some enormous transportation infrastructure investment needed to connect the urban core with those suburbs and the city does not seem to have a decent plan. Of course, it’s always difficult to deal with the level of growth Austin is experiencing.

leftistconservative March 11, 2014 at 6:36 am

Growth Uber Alles!
Seig Heil!

GDP Uber Alles!
Seig Heil!

Forgot quality of life!

Forget what the citizens want!

Push that Growth Memes, propagandists!

Rich folks gotta get richer!

TGGP March 11, 2014 at 8:43 am

People move to Texas, so it does seem to be giving people what they want.

BrentR March 11, 2014 at 11:20 am

Most of the time, when I find people complaining about quality of life, they are really trying to impose their personal preferences on the definition of quality of life onto other people.

It’s kind of like work-life balance. There is no real balance, only priorities, preferences and decisions.

a Michael March 11, 2014 at 10:28 am

Suppose the main driving force behind the “Texas Miracle” is the gas and oil boom. You would still need to give Texas credit for taking advantage of those resources since it’s not automatic that governments will do that. For example, see the U.S. federal governments’ policies on Keystone, off-shore drilling, and natural gas exports (http://thehill.com/blogs/e2-wire/e2-wire/200407-ukraine-crisis-fuels-gas-debate)

BrentR March 11, 2014 at 11:23 am

If California had good, proven shale gas reserves that could be extracted economically through fracking, would there be a California Miracle? I doubt it.

Mike Davis March 11, 2014 at 12:54 pm

According to the EIA the Monterey shale may have over 13 billion barrels of recoverable oil. (However, as they say, experts disagree.) USC did a study saying that if those were developed, good things would follow–don’t remember the exact numbers but it was something like 2 million jobs and $20+ billion in taxes. CA has water issues and a NIMBY culture but they also have big budget issues (think state pensions) and an economy that is toxic to the middle class. We’ll see.

DocMerlin March 11, 2014 at 2:01 pm

Cali DOES have “good, proven shale gas reserves”, they just don’t use them.

J.D. March 11, 2014 at 11:06 am

Do these population figures distinguish between those who moved to the state solely for economic reasons vis-à-vis the population spike Texas saw from refugees fleeing New Orleans and Louisiana after Katrina?

Ad Nauseum March 11, 2014 at 2:48 pm

What was the spike? How many people? Evacuee migration from Louisiana is probably too small to really matter.

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Jim S March 11, 2014 at 12:02 pm

Several other items to consider:
1. The number of undocumented workers (or illegal aliens, if you prefer that term) has been going down.
2. One reason people move to Texas is cheap housing.
3. Houston doesn’t go broke, because when finances get tight, it’s legally able to swallow another suburb, so long as it promises to maintain a level of services equivalent to the current level.
4. People from other parts of the country probably can’t conceive of the level of construction happening in the area just north of Houston (Spring / The Woodlands). On a drive of about 10 miles last month, I counted 18 or 19 construction cranes.

DocMerlin March 11, 2014 at 2:01 pm

Yah, Houston is this massive blob that eats unincorporated cities.

A Michael March 11, 2014 at 4:47 pm

In assessing the “Texas Miracle,” you also have to consider the fact that it is an awful place to live in terms of climate, geography, and home architecture. It’s hot, humid, flat, and has the most undesirable beaches and seawater I’ve encountered — the sand is extremely fine, the beaches are often covered in rotting seaweed, and the water is brown, extremely salty, and too warm to be refreshing on the hottest days. And did I mention all of the ugly homes from the 70′s, 80′s, 90′s, and 00′s? And to top it off, it almost always feels muggy, even in the middle of the regular droughts during the summer. I can count on my two hands the number of days each year that the weather was nice enough to leave the windows open. And yet, people still move there… from within the U.S. no less! It’s a miracle in itself and worthy of adulation. Something is going on to get people to move there.

A Michael March 11, 2014 at 4:49 pm

I should clarify that this comment is mostly in reference to Houston, but applies in many ways to Austin, Dallas, and San Antonio, too.

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cynthia curran March 31, 2014 at 10:47 am

Actually, international immigration has increase to Texas and decrease to California. Texas was the only state to not lose illegal immirgants and is just 800,000 lower than California in illegal immigrants and about a million more than Florida In fact in Houston and Dallas international immirgation is greater than domestic immigration. Domestic is more in the suburbs.

cynthia curran March 31, 2014 at 10:49 am

Austin has high poverty for a tech capital around 19 percent. Only San Antonio and El Paso have lowered their poverty rates significant. Both have low Afro-American populations while Houston and Dallas have high Afro-American populations.

Thiemo Fetzer April 6, 2014 at 3:44 am

Edson Severini argues in his job market paper “The Power of Hydroelectric Dams: Agglomeration Spillovers” that agglomerations may be the result of comparative advantage arising from cheap energy cost. These gave rise to manufacturing agglomerations, which lead to urban clusters in the East of the US as we see them today. In my paper on fracking, I see that energy prices for places with shale deposits have dramatically fallen in places that are not well integrated into the US energy infrastructure due to a lack of pipelines. This may give rise to a similar story as Edson’s point and does apply for some parts of Texas.

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