Energy, particularly oil and natural gas, is pivotal to economic growth.
The EIA forecasts global oil demand to reach record highs in 2023 and 2024, challenging the fears of a potential recession. A thriving O&G sector indicates a robust economy, which is evident in the data.
Recent data gives us reasons for economic optimism. We have witnessed strong energy demand, record U.S. O&G exports, sturdy domestic production and fluctuating inventories. Specifically, U.S. crude oil stocks in August fell to the lowest level since 1985. In terms of the global oil market, U.S. inventory data is the most timely and transparent in the world. The drop in U.S. crude oil inventories shows there is a historically low cushion against potential market disruptions, which raises concerns over the extended supply cuts by OPEC+. By contrast, U.S. natural gas storage levels are close to five-year highs, reflecting strong productivity.
Economic projections at the Texas, U.S. and global levels have performed well despite recessionary forecasts earlier this year. Consequently, the International Monetary Fund (IMF) and global central banks recently increased their global GDP growth projections by 0.6% year-over-year (y/y) to 2.4% y/y in 2023, with similar growth projected for 2024. Since half of this year's data is in the record books, only unforeseen circumstances could significantly change these estimates.
For the U.S. economy, real GDP growth is now forecast by the IMF to come in at 1.8% y/y in 2023, versus expectations of 0.5% y/y just six months ago. Texas also outperformed weak expectations by the state comptroller for GDP growth of 0.9% y/y in 2023, compared with an actual pace of 5.0% y/y in Q1 2023.
Historically, growth rates such as these have meant higher energy demand, primarily from O&G.
Although headlines often focus on changes in growth, it is important to recognize the link between the world's primary energy needs and overall levels of activity. Even if demand growth remains steady, consistent investments are still needed due to the natural decline in O&G output. Relatedly, the levels of global economic activity and oil demand are set to reach record highs in 2023, according to the EIA.
On the supply front, as OPEC+ has extended output cuts, the U.S. is expected to lead global oil supply growth. Texas is at the forefront of U.S. oil supply growth, having already set multiple records in 2023, including the production of oil, natural gas and NGLs.
Specifically, Texas Oil & Gas Association (TXOGA) estimates that Texas oil production hit a record of 5.7 million b/d in August. Natural gas production also rose to a record of 34.1 bcf/d of gross withdrawals in August, including 30.9 bcf/d of marketed production, 26.35 bcf/d of dry gas production and 3.2 million b/d of NGLs. As Texas' natural gas production has reached milestones, strong domestic storage levels have helped exert downward price pressure despite record-high natural gas exports and historically strong consumption. In turn, abundant and low-cost natural gas has advantaged American industries, ranging from refining and petrochemicals to electricity generation.
A look back at Texas' energy employment versus its production reveals remarkable productivity. Between 1990 and 1996, the relationship between production and industry employment was consistent. From 2005 onward, as the energy revolution took root in Texas, production soared, with employment reaching almost 600,000 by late 2015. Despite employment fluctuations since then, Texas' production has set new records. This productivity spike is attributed to technological advancements, process digitalization and automation. Over 482,000 people were employed in Texas' O&G sector in Q1 2023, highlighting the role of innovation in enhancing efficiency.
Texas' unmatched O&G production is a testament to its rich resources, pro-business climate and exceptional energy infrastructure. It rightly deserves its reputation as the global energy hub and the epicenter of O&G innovation.
For more information, visit txoga.org.
