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Texas Petrochemical Industry, Texas Credit Ratings, Cross-Border Shopping Focus of Dallas Fed's Southwest Economy

For immediate release: December 19, 2012

DALLAS—The latest issue of the Federal Reserve Bank of Dallas’ Southwest Economy includes articles on Texas’ expanding petrochemical industry, Texas’ credit ratings and the impact of Mexican shoppers on Texas border cities.

Find the fourth quarter 2012 issue at:

http://www.dallasfed.org/research/swe/index.cfm

The boom in U.S. shale oil and gas exploration has resulted in the resurgence of the petrochemical industry, and Texas is reaping the economic gains, including increases in construction, jobs and exports, according to business economist Jesse Thompson in “Booming Shale Gas Production Drives Texas Petrochemical Surge.”

Texas’ Eagle Ford Shale, with its significant amounts of oil and natural gas liquids (NGLs), prominently feeds Texas refining and petrochemical facilities that produce ethylene, a key petrochemical used to manufacture products including pipes, plastics and industrial chemicals, Thompson states. Texas accounts for 72 percent of U.S. ethylene capacity.

Several firms are investing in increasing their ethylene capacity in Texas, including new plant construction and expansion of existing ethylene refining plants, Thompson says. The construction work should have a significant economic impact on the region.

Texas is already a leading U.S. exporter, including 24 percent of U.S. chemical exports and 12 percent of U.S. plastics exports, Thompson notes.

“Greater domestic ethylene production will significantly outstrip projected domestic demand growth over the next several years,” Thompson writes. “As a result, U.S. petrochemical exports, particularly from Texas, will expand significantly.”

In “Determining Creditworthiness and Texas’ Case for a Top Rating,” senior research economist Jason Saving says Texas has one of the nation’s higher credit ratings, reflecting a relatively diversified economy, comparatively stable tax system, large rainy-day fund, consistently strong growth rate and fairly well funded employee pension system.

Texas also offers a favorable business climate and is among the biggest destinations for migrants, strengthening the state’s fiscal capacity, according to Saving.

“Yet, Texas also faces challenges involving education and Medicaid that, depending on how they are handled, could diminish that capacity down the road,” Saving writes.

New Dallas Fed research suggests Mexican trade represents a significant share of border retail activity—40 to 45 percent in Laredo, 35 to 40 percent in McAllen, 30 to 35 percent in Brownsville and 10 to 15 percent in El Paso, according to this issue’s “Spotlight” article.

El Paso relies mostly on shoppers from its sister border city, Ciudad Júarez, while Rio Grande Valley communities draw to a greater extent from interior cities such as Monterrey, the article notes. Mexican shoppers spend more than $4.5 billion annually on food, clothing, auto parts and other retail items in Texas border cities.

This issue of Southwest Economy also features an “On the Record” conversation with Dallas Fed research economist Michael Plante on energy markets and an article on the drought’s effects on the U.S. and Texas economies.

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Media contact:
Alexander Johnson
Phone: 214-922-5288
Email: alexander.johnson@dal.frb.org

 

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