Higher Fuel Prices Could Be Mixed Bag for Texans

HIGHER oil prices following Iraq's invasion of Kuwait have given Texas a boost. But many Texas officials would rather see prices stabilize - even at a lower price per barrel than is current - and are calling for the United States to adopt a national energy policy to help control prices.

Texas was forced to diversify its economy after the 1980s oil bust, when many oil and related companies folded. Nonetheless, oil production and related industries constitute a vital part of the economic base of the Lone Star state.

Now oil and natural gas production taxes make up only 8 percent of the state's total taxes, down from 28 percent in 1981, says John Bender, deputy state comptroller.

``Changes in the price of oil have less of an impact [on Texas] than 10 to 20 years ago,'' Mr. Bender says. Still, if the price of a barrel of crude oil is raised $1 for a year, the Texas state treasury receives $50 million in additional state taxes, he says.

However, it is too soon to tell if higher prices will hold, or if they will mean more jobs for Texans. Higher gasoline prices could even lead to a drop in consumption and cost the state revenue, Bender says.

The state treasury sorely needs new funds. Texas is facing serious court-ordered reforms in how it funds public schools, prisons, and services to the mentally retarded. Last week, Medicaid payments to Texas hospitals were cut off because the state's Department of Human Services funds have run dry.

But what Texas needs more than anything is for oil prices to stabilize, says William Fisher of the Bureau of Economic Geology at the University of Texas at Austin.

``The [current] price level is such to encourage a substantial amount of exploration and development, but the big factor is the perception of how stable [prices] might be,'' says Dr. Fisher, who is also with the Texas Independent Producers and Royalty Owners.

Oil producers have been burned so often by fluctuating prices that most will be cautious about investing in new wells, he says. Also, the reduced oil-field activity of recent years has sapped the infrastructure of equipment and trained personnel Texas once had.

``One reason [OPEC] has made sure we've had low prices for the last four to five years is they wanted to raise consumption in the US and the rest of the industrialized world, and to reduce non-OPEC production. They've been very successful at that,'' Fisher says.

``If prices are higher and perceived as being stable [over the next several years], then the infrastructure will be built back up,'' Fisher says.

The United States is still dependent on foreign oil because consumers want to pay low prices for gasoline and don't care where the crude comes from, says John Sharp, commissioner for the Texas Railroad Commission, which regulates the oil and gas industry.

Texas crude is more competitive at higher prices because its cost of production is greater than that of oil in the Middle East. Higher labor costs and more stringent environmental controls in the US make Texas oil cost about $6 more per barrel than Middle Eastern oil, Mr. Sharp says.

Last Thursday Sharp announced a four-point plan to reduce oil imports by using natural gas in place of fuel oil whenever possible. Electric utilities and vehicles can be designed as ``dual-fuel'' operations.

Natural gas is plentiful in Texas, and in the last five years has brought more wellhead taxes than oil, Sharp says. ``Texas currently has excess natural gas supplies of 1 billion cubic feet per day,'' he says.

As long as the situation in the Middle East is as unstable as it is now, there is no way to predict what will happen to the Texas economy, says Gary Wood, president of the Texas Research League, a business-backed research group.

Although its economy is still fragile, Texas still might feel a nationwide recession less than other states, Mr. Wood says. But any positive effects on the state treasury of higher oil prices could be offset by the negative impact of higher prices - and a possible nationwide recession - on low-income Texans.