The economies of Odessa and Midland are booming again with the Permian Basin oil industry, bringing renewed challenges such as labor shortages, housing scarcity and a demand for greater investment in public infrastructure such as roads and schools, economist Ray Perryman said Thursday.
Perryman, a leading Texas economist who lives in Odessa, projected local job and real gross product to outpace the state and the country over the next five years. Odessa alone should see employment grow by about 2.2 percent a year, adding more than 8,200 workers by 2022.
“The economy right now: There is every indication that it should do very well in both communities,” Perryman said. “Very few places in the country see those kind of (growth) rates. They are very very impressive rates. And it’s because of the strength of the oil industry, and the fact that it seems to have some staying power.”
The majority of oil companies in the region can profitably drill a new well at oil prices that today hover above $60 a barrel.
But here are the main constraints Perryman discussed:
Education: Schools in Odessa and Midland need to improve, making the cities more attractive places to live and educating the future workforce. Perryman said the state needs to better fund schools amid rapidly changing demographics.
“We have a demographic time-bomb in this state, and we have to do something about it,” Perryman said.
Tariffs: The Trump administration’s decision to apply a 25 percent tariff on steel will make pumping oil in the Permian Basin more costly.
“It will raise costs,” Perryman said. “If you think about it, everything they put in the ground, everything they put on top of the ground, and everything they use to do it has a lot of steel in it.”
In the most recent Dallas Fed Energy Survey, one of the unnamed respondents from an oil company indeed pointed to steel tariffs as creating uncertainty in the cost outlook.
“Longer term, the tariff could impact many facets of the exploration and production industry and could cause additional inflationary pressures while it’s in place,” the executive wrote.
An oilfield service company executive pointed to the same problem, commenting that the “recent uncertainty regarding steel tariffs has the potential to create a major immediate shortfall in upstream drill pipe and to add significantly to costs, which would negatively impact the internal rate of return on many plays. This uncertainty is self-inflicted and unhelpful to our energy business.”
Labor: The unemployment rates — around 3.2 percent in Odessa and 2.5 percent in Midland — show a tight labor market and struggle to find workers, after thousands left during the bust that hit about four years ago.
Oilfield services firms are driving job growth and continue to need more workers.
“The labor shortage in West Texas is only getting worse,” an executive of an oilfield services company commented to the Dallas Fed. “It’s not only affecting hiring, but also the availability of contract or third-party labor.”
Perryman said nearly all of the workers in Odessa and Midland who want jobs have them. He said immigrant labor is also critical for the state and the region — particularly in the construction sector.
“It’s always tough to get workers,” Perryman said. “We have very low unemployment rates here.”
Infrastructure: Developing secure water supplies and infrastructure is critical in the arid region, Perryman said. As overall freshwater usage by the oil industry continues to rise, oil companies also face renewed pressure to manage supplies and seek alternative water sources.
Roads face additional strain as trucking surges. And the housing and rental markets continue to tighten.
“Many of our staff members have very low salaries,” UTPB President Sandra Woodley said. “And many of them have seen increases as much as $400 and $800 in their rent price just over the last year.”
But the strain brought by the boom that ended in 2014 may leave the area more equipped to handle the one underway, Perryman said.
“It’s going to be tough,” Perryman said. “The best problem you can have is the problem of growth. But it is a problem. There are things you have to do when you are growing to meet those challenges.”