Energy Prices Hammering San Antonio’s Economy

The San Antonio metropolitan area faces significant headwinds from the steep fall in energy prices. Some energy companies, especially with elevated debt levels and less capital, are finding themselves in the midst of a precarious situation, possibly heading towards bankruptcy. With oil price hedges already expired or expiring soon, many have been forced to radically reduce capital expenditures. According to Baker Hughes, the oil rig count in the Eagle Ford Basin fell by 63 percent year-over-year to 53 by mid-February 2016. If the energy prices stay below $30/barrel for a long time, the San Antonio area will see an outmigration of former energy workers and their families, thereby adding more salt to the injury.

However, the story is not that bad for the region’s oil refining companies like Valero Energy and Tesoro Corp, which are benefitting from lower input costs. Likewise, consumers are saving money at gas pumps as gas prices hit generational lows. The area’s natural gas industry is poised to benefit as the U.S. increases exports of natural gas to Latin America, Europe and Asia in the next 16 months according to the U.S. Energy Information Administration. Natural gas rig counts increased from one in late January to five in mid-February, although year-over-year natural gas rig counts are down by 74 percent in the Eagle Ford region. The presence of refineries, pipelines and storage tanks in the proximity of Eagle Ford, along with the growing tourism and health care industries are key supporters to the area’s economy, even in the energy-distressed era.

Until now, the San Antonio area’s real estate market has remained solid, mainly fueled by the robust single-family home market activity. The area’s year-over-year home sales grew by seven percent in January with a median home price appreciation rate of around five percent. The San Antonio’s multifamily market remained relatively weak in 2015Q4, with an overall apartment occupancy rate of 94 percent and multifamily housing starts declining by 39 percent year-over-year. We expect the area’s housing prices and rent growth to moderate in 2016, as jobs and incomes suffer from lower energy prices.

San Antonio 2016Q1

Click here for the complete San Antonio MSA Regional Economic Update: SanAntonio 2016Q1.

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