Houston

Houston

Economic Outlook

2019

ECONOMIC OUTLOOK 2019

HOUSTON'S ECONOMY BACK ON TRACK

Houston ranked among the top-performing U.S. metros last year and has historically been a top 10 metro leading the nation in population and job growth. According to the U.S. Census Bureau, the Houston-The Woodlands-Sugar Land MSA recorded the 3rd largest year-over-year increase in nonfarm payroll employment, recording an increase of 86,200 jobs or 2.8%. Professional and business services added the largest number of jobs from April 2018 to April 2019, up 22,300.

Since the dramatic fall of oil prices that occurred in late 2014, Houston's economy slowed significantly and grew at a lesser pace in 2015, 2016 and 2017 than its' average annual rate. Even though Houston's economy experienced accelerated growth in 2017, it was well below Houston's potential due to the impact of Hurricane Harvey, which paralyzed the city for several weeks in August 2017. Houston's resiliency to overcome immense devastation led to an up-tick in consumer spending within weeks after the event and within a years time the city was back in growth mode.

Houston has historically been one of if not the top metro in population growth. Metro Houston area, which consists of nine counties, recorded the third largest numeric population gains in population growth between July 2017 and July 2018 of 91,689 people and added one million new residents between 2010 and 2018, an 18.2% increase. A recent study by the Greater Houston Partnership reports that nearly one in four residents in the Houston region was born outside of the United States. Metro Houston's population forecasts show Houston's population growth to increase to 7.1 million by 2020.

HOUSTON, TEXAS METRO AREA DETAIL

HOUSTON

SAN JACINTO

AUSTIN

WALLER

MONTGOMERY LIBERTY

HARRIS

CHAMBERS

FORT BEND

GALVESTON

BRAZORIA

Houston's strategic location and core strengths, including an expanding healthcare sector, cutting-edge medical advancements, technological breakthroughs across industries and strong import/export trade activity (No. 1 U.S. port in foreign tonnage), uniquely position it to play a vital role in meeting national and global market demands. Houston has and will continue to stand as a global leader among U.S. metros and the world.

EXECUTIVE SUMMARY

2018 2017 2016

HOUSTON MSA EMPLOYMENT JOBS GAINED

73,300 54,200 -2,500

HOUSTON UNEMPLOYMENT PERCENT (%)

12/2018

3.9

12/2017

4.5

12/2016

5.3

2018 2017 2016

HOUSTON MSA POPUL ATION

IN MILLIONS

GROWTH (%)

7.06

2.2

6.91

2 .1

6.77

2.3

ENERGY: OIL & NATURAL GAS

WTI CRUDE OIL: PER BARREL

2019 EIA Forecast

$ 5 6 .1 3

2018 EIA Forecast

$65.06

2017

$50.79

2016

$43.33

2019 EIA Forecast 2018 EIA Forecast 2017 2016

NATURAL GAS: PER MMBtu

$2.95 $3.27 $ 3 .1 0 $2.61

IMPORT / EXPORT TRADE

HAS AIR FREIGHT: IN THOUSANDS METRIC TONS

2018 2017 2016

4 9 4 .1 458.6 426.7

PHA TOTAL TONNAGE (short tons): IN MILLIONS TONS

2018

40.9

2017

38.3

2016

3 5 .1

(Port statistics exclude leased facilities)

HOUSTON ECONOMIC OUTLOOK

PAGE 2

Population Growth

HOUSTON POPUL ATION

HOUSTON CITY

2018 2017 2016 2015

2,325,502 2,317,445 2,309,752 2,286,630

HOUSTON MSA

2018 2017 2016 2015

6,997,384 6,905,695 6,812,260 6,676,565

Houston ranks among the leading metropolitan areas in the U.S. and is the fourth largest city and the fifth largest Metropolitan Statistical Area (MSA) in the nation. Metro Houston area, which consists of nine counties, recorded the third largest numeric population gains in population growth between July 2017 and July 2018 of 91,689 people. A minimal decline when compared to the 93,435 people added between July 2016 and July 2017. Metro Houston's population forecasts show Houston's population growth to increase 7.1 million by 2020. On a more long-term basis, demographers project strong population growth for the area over the next thirty years as domestic and international migration trends favor Houston's geographical, cultural and economic strengths.

The median household income for the Houston-The Woodlands-Sugar Land metro area was $63,802 in 2017, up 3.4% from 2016. Houston's 2017 median household income is more than 7.8% higher than both the median Texas household income and 5.7% higher than the median U.S. household income. 2018 data will be released in September 2019.

2019 FORTUNE 500 LIST

Twenty-two of America's top 500 companies are headquartered in Houston. Four of Houston's top five are in the energy industry.

HOUSTON TOP 5 FORTUNE 500

NATIONAL RANK

COMPANY

23

PHILLIPS 66

54

SYSCO

86

CONOCO PHILLIPS

89

ENTERPRISE PRODUCTS PARTNERS

94

PLAINS GP HOLDINGS

REVENUE in billions $114.2 $ 58.7 $ 38.7 $ 36.5 $ 34.1

Houston's strong economic base continues to be a key factor, driving both domestic and international migration trends. Houston's Fortune 500 rankings increased by one over the previous year. Houston's MSA ranks fourth among U.S. cities with the most Fortune 500 headquarters with twenty-two companies on the 2019 list, following New York (73), Chicago (31) and Dallas-Ft Worth (24). Phillips 66 ranked highest on the list again for Houston-based headquarters on the Fortune 500 list, moving up to 23rd place from its No. 28 ranking in 2018. Statewide, Texas was the third ranking state with 49 companies on the list, just one less than California with 54 and ten less than New York with 58. All but three of Houston's 22 companies on the Fortune 500 list are in the energy industry and the stronger rankings of each company on the list reflect a healthier economy than last year.

Houston area residents are well-educated, with the majority of the population over 25 years of age holding a high school diploma and residents with college/graduate educational studies outnumbering those with less than a high school education. This high level of educational achievement is not surprising given Houston's numerous nationally recognized colleges and universities, as well as technical and trade schools, including Rice University, University of Houston, University of St. Thomas, Texas Southern University, Houston Baptist University, Baylor College of Medicine, San Jacinto College, Lone Star College and Houston Community College. Rice University ranks in the No. 16 spot in U.S. News & World Reports National University Rankings 2019 guide to America's best colleges, the only Texas college in the top 20.

Bolstered by above-average demographic trends and a strong base of diverse industries, Houston is well-positioned to compete in today's global markets. Long recognized as the energy capital of the world, with every major energy company represented locally, Houston now stands as a global example of economic diversity. The area is home to a thriving base of industries including medical/ biomedical technology, global trade (particularly airborne and waterborne domestic/international cargo), aeronautics, plastics manufacturing, electronics, computers, software design and integrated power.

SOURCES: : U.S. Census Bureau, Greater Houston Partnership; Fortune Magazine

HOUSTON ECONOMIC OUTLOOK

PAGE 3

Employment Sector

SELECT MAJOR AREA

EMPLOYERS

Houston's employment sector is large and diverse, with over 3.1 million non-farm payroll jobs reported in January 2018. Houston added 73,300 jobs in 2018, above the historical average growth of 50,000 to 60,000 jobs. Looking forward, Houston's short-term job market is expected to see above normal growth, as the Greater Houston Partnership has forecast 71,000 jobs for 2019.

According to the U.S. Bureau of Labor Statistics, Houston's industry sectors that posted annual gains of jobs in 2018 include construction, oil and gas, manufacturing, wholesale trade, financial activities, professional and business services, transportation, healthcare and social assistance, government, arts/entertainment/recreation, accommodation and food services, and other services. Industry sectors that registered annual job losses during the same time period include retail trade and information.

According to the The Associated General Contractors of America, the Houston MSA has the largest annual construction job gains between December 2017 and December 2018.

HOUSTON MSA ANNUAL JOB GROWTH

Houston ranked as the "Top Metros Where Young Adults are Moving" January 2019 by The Brookings institute

& Houston ranked #1 "2019's Most Diverse Cities

in the U.S." April 2019 by The Langston Co.

150,000 106,900

100,000

50,000

Houston-The Woodlands-Sugar Land

Annual Job Growth

*projected

91,000

82,900 50,500

117,500 90,000

116,700

Layos began middle of Q1 2015

73,300 71,000 54,200

0 -50,000

21,500

Shale Gas & Oil

-2,500 -2,400

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 *2019

The Great Recession

Energy Downturn

-100,000 -150,000

-110,500

Oil prices fall

beginning of Q4 2014

SOURCES: U.S. Bureau of Labor Statistics

HOUSTON ECONOMIC OUTLOOK

PAGE 4

Business Climate

Houston has long been recognized among the most competitive U.S. cities for corporate relocation and expansion activity. Houston is the top-ranked metro for Economic Growth Potential in Business Facilities' 14th Annual Rankings Report, released in July 2018. In addition, Chief Executive Magazine (for the twelfth straight year) named Texas the "2017 Best State for Business." In addition to its diverse industries and educated/skilled workforce, a key factor underscoring Houston's business appeal is the fact that it is one of the least expensive major U.S. cities in which to conduct business. Significant benefits include the absence of state or city income taxes, no state property tax, as well as a moderate cost of living index.

HOUSTON-THE WOODLANDS-SUGAR LAND MSA 2018

GROSS METROPOLITAN PRODUCT $580 BILLION (estimate)

Port Houston Ranked No. 1 U.S.

Foreign Tonnage Ranked No. 2 U.S.

Total Cargo Value Largest Gulf Coast

container port

Energy Industry Global Energy

Capital 4,500+ firms

in the region 42 percent of the

nation's base petrochemical capacity

Airport System Ranked No. 10 U.S.

Airport Passengers 58M Passengers

in 2018 540,000 metric tons

of Air Freight in 2018

Texas Medical Center World's Largest Medical Complex

(1,345 Acres) 106K Employees 61 Member Institutions 8M+ Patients Annually 16K International

Patients Annually

SOURCES: Federal Reserve Bank of Dallas; Port Houston; ; Greater Houston Partnership; TMC, NASA/JSC, statista

NASA /Johnson Space Center 1,700-acre Complex Major Employers >The Boeing Company >Lockheed Martin >Jacobs Engineering >Oceaneering Space

Systems >Raytheon Company

As a major transportation hub with two major airports, a world-renowned port and superior rail and road infrastructure, Houston facilitates the interconnection of global business locations. Business alliances with major U.S. and international markets are further enhanced by the presence of 90 foreign consulate offices in Houston. As of 2018, Houston still ranks third in the U.S. ? following New York and Los Angeles ? in foreign consulate representation.

Houston's ability to foster continued expansion in future-growth industries responsible for generating high quality, well-paid jobs across all business sectors has placed it in the top tier among U.S. cities. With its numerous business advantages, Houston is wellpositioned to successfully compete in today's global marketplace.

TRAVEL TIME FROM HOUSTON

CITY

DISTANCE

Atlanta Chicago Denver Los Angeles Miami New York Seattle

793 miles 1,090 miles 1,119 miles 1,550 miles 1,188 miles 1,631 miles 2,443 miles

AIR RAIL TRUCK in hours

2.5 66 13 2.5 86 18 2.5 60 17 3.5 90 24 2.5 NA 20 2.5 NA 20 5.0 60 36

SEAT TLE

LOS ANGELES

DENVER

CHICAGO

NEW YORK

ATL ANTA

HOUSTON

MIAMI

SOURCES: , Official Airlines Guide, BNSF Railway, Union Pacific Railroad, and Greater Houston Partnership Research Department

HOUSTON ECONOMIC OUTLOOK

PAGE 5

Global Energy Capital

Houston is internationally recognized as the global energy capital, with virtually every segment of the energy industry represented in the region. It is also known as the global center for integrated power, a fast-growing new sector of the energy industry. In just over a decade, the number of Houston-based energy trading companies has tripled, with petrochemical capacity in the area nearly four times larger than the nearest competing U.S. site. All major oil and gas companies have extensive operations in the area, including ExxonMobil, Chevron, BP America, Citgo, Conoco, Phillips66, Shell Oil Company, BHP Billiton, El Paso Corp., TOTAL, BG Group, LyondellBasell, Halliburton, Occidental Petroleum, Petrobras, Marathon Oil, Anadarko Petroleum, Transocean, Apache, Hess Corporation, Newfield Exploration, Enterprise Products Partners and Plains All American Pipeline.

HISTORIC CRUDE OIL PRICES $120

Dec 2018: $49.52/bbl

$100 Dec 2013: $97.63/bbl

$80

$60

According to BP's 2018 Statistical Review of World Energy, global primary energy consumption increased 2.2% in 2017, up from 1.2% in 2016 and the highest since 2013. North America consumed 20.5% in 2017 while Europe and Eurasia's consumption was 21.8% and Asia Pacific consumed 42.5%. Based on the report, oil remains the world's leading fuel. In 2017, 34.2% of global energy consumption was oil, followed by coal at 27.6% and then by natural gas at 23.4%.

$/bbl

$40

$20

$0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

$/MMBtu

HISTORIC NATURAL GAS PRICES

$14 Dec 2018: $4.04/MMBtu

$12

Dec 2005: $13.05/MMBtu

$10

$8

$6

$4

$2

$0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

Rig Count

2100 1900 1700 1500 1300 1100 900

700 0

U.S. ROTARY RIG COUNTS

Dec 2018: 1,083 Dec 2011: 2,019

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

SOURCES: Energy Information Administration; West Texas Intermediate; Baker Hughes; BP

The U.S. Energy Information Administration's (EIA) Annual Energy Outlook released in January 2018 predicts that the U.S. will become a net energy exporter in 2020 and will remain so through the projection period 2050. Further, increasing energy efficiency across end-use sectors will keep U.S. energy consumption relatively flat even as the U.S. economy expands. Also, natural gas and NGPLs will have the highest production growth of all fossil fuels. NGPLs will account for almost one-third of cumulative U.S. liquids production during the projection period.

West Texas Intermediate crude oil prices increased from $50.80 per barrel in 2017 to $65.23 per barrel in 2018. The EIA projects $62.79 per barrel for 2019.

The Henry Hub natural gas prices are projected to rise from an average of $3.10 per MMBtu in 2017 to $3.27 per MMBtu in 2018. The EIA projects an average of $2.89 per MMBtu for 2019.

The U.S. rotary rig count increased annually by 16.6% to 1,083 rigs in December 2018, from 929 in December 2017. U.S. upstream oil and gas capital expenditures increased 23% in 2018 and is only expected to increase 2% in 2019.

HOUSTON ECONOMIC OUTLOOK

PAGE 6

Petrochemical & Plastics Industry

Texas is the largest chemical-producing state, generating $172 billion in annual revenue. Houston is a global leader in manufacturing petrochemicals, with the Houston Ship Channel recognized as the largest petrochemical complex in the U.S. The Houston-The Woodlands-Sugar Land region operates the largest petrochemical plants, including Bayport Industrial District, Battleground Industrial Complex, Bayport Shipping Terminal and the Houston Ship Channel.

Today, the chemical industry employs more than 100,000 workers directly with another 500,000+ related jobs in Texas and about half of those jobs are in the Houston region. In 2018, Texas led the nation in crude oil production, with 27 petroleum refineries producing more than 36% of the nation's crude oil production. Houston accounts for over 42% of the nation's base petrochemical capacity.

According to the EIA, Texas leads the nation in fossil fuel reserves and is the nation's leading natural gas producer, accounting for approximately 28% of total U.S. natural gas production.

Based on data from Port Houston, the development of shale oil and gas increased the demand for container shipping and will increase future exports of plastics and chemicals.

MAJOR HOUSTON REGION CHEMICAL PLANTS

Air Liquide USA Air Products Baker Petrolite Corporation BASF Corporation Bayer Material Science BP Texas City Celanese Chevron Phillips Chemical DowDuPont ExxonMobil Chemical Goodyear Tire & Rubber Company I NEOS Olefins & Po l y mers LyondellBasell Industries Lubrizol Corporation Marathon Petroleum Oxy Phillips66 Rohm and Haas Texas Shell Chemical Solvay Chemicals, Inc Total Petrochemicals USA Valero Refining Co

ENERGY INDUSTRY HEADLINES

MAY 2019 MAY 2019 MAY 2019

MAY 2019 MAY 2019 MAY 2019

MAY 2019

MAY 2019 APR 2019 APR 2019 APR 2019 APR 2019

APR 2019

MAR 2019

MAR 2019

OTC attendance down for 5th consecutive year

There's tremendous room for growth in offshore oil & gas

Guyana comes to Houston, seeking partners to develop newfound oil wealth

Crude oil prices rise on EIA's lower oil inventory

Occidental steals Chevron's thunder in battle for Anadarko

Energy companies woo young workers with relaxed culture, tech

Exxon plans to invest up to $100M over 10 years in loweremissions R&D

Exxon OKs $2B Baytown Chemical expansion project

Houston co. starts construction on $170M wind farm

Houston LNG co. nears completion on export project

Bahrain oil minister explores Houston for tight oil partner

French energy giant Total invests $700M in Houston LNG co.

Marathon Petroleum to spend $1.2B on Houston-area refinery project

Houston has more open oil and gas jobs than any other city in Texas

Texas added 10,000 clean energy jobs in 2018, trails only California

SOURCES: Energy Information Administration; Greater Houston Partnership

SOURCES: Oil & Gas Journal; Houston Business Journal; Houston Chronicle

HOUSTON ECONOMIC OUTLOOK

Port Houston

Port Houston's market strength and strategic location along the 52mile-long Houston Ship Channel produces a winning combination for business growth and increased industrial development. The economic impact of Port Houston is significant, producing more than 1.35 million jobs and an economic value of $339 billion for Texas. Port Houston generates $5.7 billion in state and local tax revenue annually.

Port Houston is recognized as the No. 1 U.S. port in foreign waterborne tonnage and is the No. 3 ranked U.S. port in terms of total foreign cargo value. Having 45% of the Texas market share by tonnage and 96% market share in containers by total TEUs in 2018, it is clear that Port Houston is a key player in this significant statewide recognition. The Port is the largest Gulf Coast container port, handling 69% of U.S. Gulf Coast container traffic in 2018.

Port Houston handled 40.9 million tons of cargo in 2018, up from 38.3 million tons in 2017. In 2016, the Port Commission approved an aggregate capital budget of $314 million for various infrastructure projects. Current capital improvement projects include Bayport rail spur and container yard construction, improvement of existing drainage system tied to IH-610 feeder road at the Turning Basin terminal,rehabilitation of Barbours Cut container yard and Wharf 3, construction of electrical infrastructure and lash dock demolition and annual pavement replacement and wharf and RTG crane painting for both terminals. Some of the future projects include further rehabilitation of wharves, adding a fire boat dock at Bayport's west end, expansion of gate facilities and construction of a maintenance facility at Barbours Cut, construction of 42 acres of container yard and port road expansion and drainage at Bayport.

PAGE 7

Photo source:

Port Houston

Total Tonnage Handled 2014-2018

50,000,000

Total Tonnage

40,000,000

30,000,000

20,000,000

10,000,000

2014 2015

2016

2017

2018

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