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Shell leaves literal and symbolic void downtown

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Next year will mark the end of an era as Royal Dutch Shell largely abandons its iconic tower and consolidates workers on the west side of town in its Woodcreek complex in the Energy Corridor and the Shell Technology Center a few miles south of Woodcreek. Only Shell’s energy trading team will remain downtown.

The move – largely to cut costs in the ongoing oil bust – continues the exodus of Big Oil from downtown Houston. Exxon Mobil moved out last year when it built its massive new campus by Spring. Of Houston’s 10 largest energy employers, just Chevron and CenterPoint Energy remain downtown.

Shell, which acquired U.K.-based BG Group early this year, also is moving that unit and will sublease most of its space in the BG Group Place skyscraper, which was completed about five years ago. It all combines for a lot of available office space in the center city.

As bad as this seems, it’s not the Energy Corridor, which is struggling even more than downtown, said Bobby Tudor, chairman and chief executive of the downtown energy investment banking firm Tudor, Pickering, Holt & Co. Many energy companies remain downtown: producers like EOG Resources, Hess Corp., EnerVest and Oasis Petroleum; pipeline kingpins like Kinder Morgan, Enterprise Products Partners and Plains All American; power companies like NRG Energy, Calpine and Dynegy; engineering and construction giants like KBR; petrochemical leaders like LyondellBasell; and liquefied natural gas upstarts like Cheniere Energy.

“If you ask me my druthers, I’d rather have all the energy companies downtown,” Tudor said. “It makes for a more dynamic industry.”

Extended hangover

The one energy sector industry that doesn’t have a big downtown presence is refining. But refiners still face an “extended hangover,” continuing to struggle even as the oil industry begins to recover, according to a report from the investment research firm Morningstar.

The independent refining industry – led by Phillips 66, Valero, Tesoro, and Marathon Petroleum – rode in the “catbird seat” during the boom and the first full year of the bust in 2015. But low gasoline prices and profit margins are making for a miserable 2016, said Sandy Fielden, Morningstar’s director of oil and products research.

Refining’s struggles began at the end of last year as huge supplies of gasoline made from plentiful cheap oil created a glut, helping to drive down prices and profit margins. The struggle is expected to extend through the end of 2017 as tougher government standards on renewable fuels and sulfur increase costs.

“The hangover from the party years has been extended by the added headache of higher costs,” Fielden wrote. “We expect lower margins to continue into 2017 until refined product inventories subside.”

The only relief for Gulf Coast refiners – apart from strong domestic gasoline demand – is the ability to export to Latin America and beyond.

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