Upstream Bust Meets Downstream Boom In Houston: The East Side Earns Some Respect

By Bill Gilmer, Institute for Regional Forecasting, Bauer College of Business

Bill_Gilmer_EFThe oil industry divides itself between upstream exploration, production and oil services, and downstream refining and petrochemical operations that turn crude oil and natural gas into useful products. Since 1980, Houston’s upstream sector has been through five major downturns in drilling, all with adverse consequences for the local economy. The current drilling downturn — the worst since the 1980’s – has hit Houston’s West Side particularly hard.

Meanwhile, largely neglected compared to its upstream sibling, the downstream refining and chemical plants in East Houston are enjoying a massive and unprecedented $50 billion construction boom. A combination of strong US economic growth and this downstream construction may be just enough to keep the Houston economy out of recession, despite the current collapse of drilling. If, in fact, newfound economic diversity keeps Houston out of a drilling-driven recession in 2015 and 2016, who would have thought the key piece may turn out to be refining and petrochemicals?

Eastside/Westside

Blame it on the wind. In North America, prevailing winds follow the jet stream and blow from west to east. So if you were looking to locate a smoke-belching factory, you put it on the East Side of the city so the wind can blow smoke and soot right out of town. Put the nice homes and shops on the West Side, where smoke is hardly ever an issue. Of course, factory workers will live in more modest East Side homes close to the factories.

This is the history of many American cities, and what we mean when we refer to East Los Angeles, East Chicago, East Austin and East Houston.  Heavy industry and working-class housing goes east, upscale suburbs and shopping moves to the west, and we create a civic divide that is both industrial and cultural – factory vs. office, blue collar vs. white collar.

In Houston, the split comes along Highway 59, and the Galleria, Energy Corridor, Katy and Sugar Land define the white collar, professional west, while Ship Channel cities like Pasadena, Baytown and Deer Park are inevitably tabbed as blue collar and working class. Since 1980, seven years out of 10 have seen the West Side outperform the East Side, as drilling thrived, and the eastside refineries and chemical plants got little recognition.

This has been all the more true since 2004, as high oil prices set off a boom in fracking, and soaring drilling activity mostly worked to the benefit of West Houston. Petroleum engineers, geologists, geophysicists and high-level executive talent were in strong demand, local wages grew  and tens of thousands of professional workers poured into Houston. Demand soared for high-end apartments inside the Loop, upscale retail, millions of square feet of new office space and shiny new suburbs around Beltway 8 and the Grand Parkway.

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