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Economic storm on the horizon

The rise of battery-powered cars threatens disaster for Houston’s oil and gas economy.

Halfway around the globe, a storm is brewing that will pose a greater threat to our oil and gas industry than Hurricanes Harvey or Ike, or even a massive storm surge right up Houston Ship Channel.

The danger: China wants to stop buying gasoline. Specifically, at an automotive conference in Tianjin, the nation’s vice minister of industry and information technology stated that the government is planning on a total phaseout of vehicles powered by fossil fuels. This announcement follows similar plans from Britain and France to ban sales of diesel and gasoline cars by 2040. That’s decades away, but the world is undeniably moving towards a future where the internal combustion engine is a thing of the past.

Houston, this is the big one. As the auto industry approaches an electric revolution, we need to start considering how this will affect our petroleum-based economy.

We can’t wait, because the future is already here. Tesla has started to deliver its first Model 3 sedans, with a goal of producing 500,000 electric vehicles next year. The new car has a sticker price of $35,000, and represents the luxury automaker’s first foray into a mainstream U.S. consumer market.

Tesla CEO Elon Musk isn’t the only one trying to build the Model T of electric cars. Chevy, Nissan and other manufacturers are preparing to sell long-range, all-electric vehicles in the $30,000 range. Volvo has also announced that all new models would be either hybrid or all-electric starting in 2019.

Don’t expect the Southwest Freeway to be filled with the hum of an electric morning commute anytime soon. Battery-powered cars will probably account for 35 percent of new vehicle sales by 2040, according to Bloomberg. From the perspective of the driver’s seat, that doesn’t look like a major change. But from the view of the fracking fields, the rise of the electric car will deal a significant blow to the oil industry.

Demand for oil-based fuels could peak by the 2030s thanks to the rise of battery-powered cars, Total Chief Energy Economist Joel Couse said at the Bloomberg New Energy Finance’s conference in April. Other oil companies, like Royal Dutch Shell, have moved their peak demand estimate up to the 2020s.

If Houston fails to confront the reality of this changing world, we may find ourselves in the same place as horseshoe salesmen and buggy whip manufacturers in the age of Henry Ford.

So how can we keep up?

Electric cars have to be charged one way or another, and we should ensure that natural gas is a major part of the energy mix. Approving more export terminals and promoting natural gas infrastructure across the globe will lay down the foundation for a long-term presence of a key Texas product. Rejoining negotiations for the Trans-Pacific Partnership and Transatlantic Trade and Investment Partnership will help open new markets for liquefied natural gas.

The oil industry and regulators alike should also be working to assure a world concerned with global warming that, yes, natural gas can be a green fuel. This means preventing methane leaks and investing in carbon-capture technology.

Houston also has to actively start promoting a diverse economy. Battery manufacturing, plastics research and biotech all have a natural home in Houston. We have to do a better job attracting venture capital and promoting startups.

However, some of the greatest opportunity rests on an undeveloped 300 acres owned by the University of Texas System near the Texas Medical Center.

“The world’s most valuable resource is no longer oil,” The Economist wrote in May, “but data.”

Those 300 acres could be our 21st century Spindletop if local leaders work to fulfill a controversial plan to build a collaborative data science center.

Our city is still growing, and we have the opportunity to invest this growth into industries that will last during boom times and busts. Being the fourth largest city in the United States is no talisman against a harsh decline. Detroit can tell you that.

An economic storm is brewing for Houston. The time to start preparing is now.


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