U.S. Energy Dominance is Over

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U.S. energy dominance is over. Output is probably going to drop by 50% over the next year and nothing can be done about it.

It has nothing to do with the lack of shale profitability or other silly memes cited by people who don’t understand energy.

It’s because of low rig count.

The U.S. tight oil or shale rig count has fallen 69% this year from 539 in mid-March to 165 last week. Tight oil production will decline 50% by this time next year. As a result, U.S. oil production will fall from more than 12.5 mmb/d earlier this year to less than 8 mmb/d by mid-2021.

What if rig count increases between now and then? It won’t make any difference because of the lag between contracting a drilling rig and first production.

The party is over for shale and U.S. energy dominance.

Energy Dominance is Over

Tight oil is the the foundation of U.S. energy dominance. The U.S. has always been a major oil producer but it moved into the top tier of oil super powers as tight oil boosted output from about 5 mmb/d to more than 12 mmb/d between 2008 and 2019 (Figure 1).

Conventional production has been declining since 1970. It fell from almost 10 mmb/d in 1970 to 5 mmb/d in 2008.

Figure 1. Tight oil is the foundation for U.S. Energy Dominance.
Conventional production has been in decline since 1970.
Tight oil boosted U.S. production to more than 12 mmb/d in 2019.
Source: EIA and Labyrinth Consulting Services, Inc.

Tight Oil Rig Count and Oil Production

Rig count is a good way to predict future oil production as long as the proper leads and lags are incorporated.

It takes several months between an upward price signal and a signed contract for a drilling rig. It takes another 9-12 months from starting a well to first production for tight oil wells. With pad drilling, usually all wells on the pad must be drilled before bringing in a crew to frack the wells.

Tight oil horizontal production reached 7.28 mmb/d in November 2019 when the lagged rig count was 613 (Figure 2). That corresponded to 12.9 mmb/d of U.S. oil production—tight oil is about 55% of total output. Approximately 600 rigs are needed to maintain 7 mmb/d of tight oil and 12.5 mmb/d of U.S. production.

The horizontal rig count is now 165 so it is unavoidable that production will fall. The considerable lags and leads mean that production decline cannot be expected to reverse until well into 2021 assuming that it starts to increase immediately. That won’t happen because of constrained budgets and low oil prices.

Figure 2. 600 tight oil rigs to maintain 7 mmb/d tight oil/12 mmb/d total U.S. output.
May tight rig count was 207 so U.S. decline to 8 mmb/d by Q2 2021 is unavoidable.
Production should increase this summer with shut-in re-activation then fall in Q4 2020.
Source: Baker Hughes, IEA DPR, Enverus and Labyrinth Consulting Services, Inc.

U.S. producers shut in most of their wells in May because oil prices had collapsed and storage had reached its limits. Tight oil production has fallen more than 1 mmb/d to 6.2 mmb/d and total U.S. output is around 10.5 mmb/d.

With the storage crisis now apparently averted and with somewhat higher oil prices, most tight oil wells are being re-activated. Production should increase until all shut-in wells are back on line and then, it will resume its decline.

Based on rig count analysis, U.S. oil production will probably be about 8 mmb/d by mid-2021 or more than 4 mmb/d less than peak November 2019 levels.

Killer Decline Rates Require Lots of Rigs

Lower U.S. crude and condensate production is unavoidable with rig counts where they are today. That is because tight oil decline rates are really high.

Figure 3 shows Permian basin shale play decline rates by year of first production. The average of all years is 27% per year. More recently drilled wells decline at higher rates because of better drilling and completion technology. The problem is that the wells don’t have greater reserves—they just produce the reserves faster. That means higher decline rates.

Figure 3. Permian basin annual decline rate is 27% for horizontal tight oil wells
Decline rates generally increase for wells drilled in more recent years
because of higher initial production rates.
Source: Enverus and Labyrinth Consulting Services, Inc.

This is not a criticism of the plays or the companies. It’s just a fact.

And that’s why it’s critical to keep 500 or 600 rigs drilling all the time—to replace the 30% of output lost every year to depletion.

Production can be turned off and on as it was in May and June. Production cannot be increased without adding rigs and drilling new wells. Assuming there was infinite capital available to add rigs and drill wells, it would take several years to increase rig count to levels needed to maintain 2019 output levels.

Drilled, uncompleted wells (DUC) may be brought on to slow the rate of production decline somewhat. It is important to note, however, that completion accounts for at least 50% of total well cost. Capital constraints and low oil prices will affect the ability and enthusiasm of companies to complete DUCs.

After the last oil-price collapse, it took 2.5 years for tight oil rig count to increase from 193 in May 2016 to 618 in November 2018 (Figure 4). There were thousands of DUCs during the last oil-price collapse in 2014-2017 but they didn’t have much effect on production decline.

The current June rig count of 165 will continue to fall for several months because of low oil price & capital budgets.

Figure4. It took 2.5 years for tight oil rig count to increase from 193 in May 2016 to 618 in November 2018.
June rig count of 165 will fall for several months based on oil price & capital budgets.
Source: Baker Hughes, IEA DPR, Enverus and Labyrinth Consulting Services, Inc.

Rigs Don’t Produce Oil, Wells Do

I’ve shown how rig count, lagged production and decline rates are used to estimate future levels of production. That approach is useful but the truth is that rigs don’t produce oil—wells do.

Another approach, therefore, is to compare the number of tight oil wells that were drilled and completed during each of the last 5 years to the corresponding average production rates for each of those years. Then, using year-to-date drilling and completion data, we can annualize and project what 2020 production is likely to be.

This approach suggests that 2020 tight oil production will be about 30% less than in 2019 (Figure 5). Since tight oil represented 56% of total U.S. output in 2019, we may then estimate that U.S. production will average about 8.7 mmb/d in 2020.

Figure 5.2020 U.S. production will be less than ~8.7 mmb/d vs 12.3 mmb/d in 2019.
Number of completed tight oil wells expected to be ~30% less than in 2019.
8.7 mmb/d is about 25% less than EIA U.S. forecast for 11.6 mmb/d in 2020.
Source: EIA and Labyrinth Consulting Services, Inc.

That is similar to the estimate obtained from the rig count approach. It is, however, about 25% less than EIA’s 2020 forecast for U.S. crude & condensate production.

Energy Dominance and Green Paint

Much lower U.S. oil production is bad for Trump’s Energy Dominance anthem and its corollary that the U.S. is energy independent. It’s even worse for oil prices and the U.S. balance of payments once demand recovers. We will have to import even more oil than we do today and it will cost more.

The idea of U.S. energy independence is ignorant at best and fraudulent at worst. The U.S. imported nearly 7 mmb/d of crude oil and condensate in 2019 and more than 9 mmb/d of crude oil and refined products. That’s almost as much as China—the world’s second largest economy—consumes.

The U.S. is a net exporter in the same way that shale companies are making huge profits—by accounting sleight-of-hand.

The U.S. imports other people’s crude oil, refines it and then, exports it. If a country imports unpainted cars, paints them green and then exports them, is it a net exporter of cars? No. It’s an exporter of green paint.

The U.S. is screwed when it comes to near- to medium-term oil production. It’s not because of Covid-19. U.S. rig count began to decline 15 months before anyone had heard of Covid-19. Even if the road to economic and oil-demand recovery is faster than I believe it will be, it will take a long time to get back to 12 or 13 million barrels per day of production.

There are good reasons to expect that much lower U.S. oil production will eventually lead to higher oil prices. That may result in renewed drilling and another cycle of over-supply and lower oil prices. That is how things have developed in the past.

But a new phase of economic reality and oil pricing is unfolding and no one knows where it will lead. Lower demand may mean that reduced U.S. oil output is appropriate. The only thing that seems certain is that the U.S. will not be the oil super power it was before 2020.

Art Berman is anything but your run-of-the-mill energy consultant. With a résumé boasting over 40 years as a petroleum geologist, he’s here to annihilate your preconceived notions and rearm you with unfiltered, data-backed takes on energy and its colossal role in the world's economic pulse. Learn more about Art here.

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  1. Mikael on August 7, 2020 at 5:33 am

    Thanks for the follow up. I am not a newsletters’ subscriber, considering becoming one since I want to take position on some quality O&G stocks. I am certainly interested to hear your analysis to my question.

    Have a good day sir,

  2. Anonymous on July 18, 2020 at 3:21 pm

    US oil has shown that it is pretty competitive at $60 oil. It becomes a powerful force as price rises, preventing a return to $100+. But $40 is a whole ‘nother paradigm. It can’t compete with ME conventional there, Oh well, at least the consumers are paying less.

  3. Mikael on June 28, 2020 at 12:04 am

    Hi Art, great article and content.

    What’s your take on the American demand for Canadian crude with the reduction of production? I work in the Canadian O&G industry and like to invest as well. My crystal ball over the past year and a half is in line with your article but your numbers put everything in perspective. In my opinion the pipeline capacity will be the major restriction for growth north along with the overly excessive environmental regulations pushed by the current Canadian government.


    • art.berman on July 2, 2020 at 4:41 pm


      I suggest that you subscribe to my newsletter and oil comparative inventory reports in which all of your questions will be answered. If not, as a subscriber, I will personally address your questions.



      All the best,


      • Mikael on August 7, 2020 at 5:34 am

        Thanks for the follow up. I am not a newsletters’ subscriber, considering becoming one since I want to take position on some quality O&G stocks. I am certainly interested to hear your analysis to my question.

        Have a good day sir,

  4. Eric Gagen on June 25, 2020 at 6:18 pm

    I don’t think production will fall quite as far as you expect, because you are assuming that companies won’t drill wells that are unprofitable. The catch is that some of them will, because they lose money more slowly continuing to drill and complete new wells than they do letting their current income fall at the rate of depletion. This is because they have payments on accumulated debt to service which of course don’t fall . The net effect will be to stretch the decline in production out in time – the trough won’t be as low, but it will last longer.
    I really like the analysis based on rig count though – it’s a fact and can’t really be disputed. I might say that an even larger constraint in the near future will be on the availability of fracturing crews and equipment. Those people and equipment are very expensive to keep standing by waiting on work, and it won’t be there later when the operators decide they want to re-accelerate their completion programs.

  5. Ken Bertram on June 25, 2020 at 2:36 pm

    Mr Berman,
    Your slide shows cumulative DUCs to be about 2,700 through 2020 but the EIA’s June 15th Drilling Productivity Report shows total DUCs to be about 7,600. What am I missing? This is a large disparity.

    My thought is that DUCs are a lower cost way for operators to sustain production without spending more on drilling in these current times.


    • art.berman on June 25, 2020 at 4:22 pm


      You are missing that I am showing DUCs that originated beginning in 2015 vs all the DUCs since EIA started publishing this data. Most of the DUCs before 2015 will never be completed because they were questionably worth drilling at $100 oil prices. Since the price collapse, producers have been forced to be more discriminating about wells that they drill.



  6. Shawn Berry on June 22, 2020 at 1:32 pm

    So, U.S. Oil production from 12.5 to 8 mmb/d by mid-2012. A 4.5 mmb/d, 36% decline. Wow.

    As you have noted comments and charts in the past, as oil goes, so goes the economy.

    Any thoughts on the corresponding decline in U.S. economic output from this production decline? Feels like the answer would be another wow. (The U.S. response may be to buy and import more externally with (devalued?) dollars, as commenter above notes.)


  7. Bill James on June 22, 2020 at 4:46 am

    An additional problem with buying foreign oil is the US Government just printed $2-4 trillion more to deal with COVID-19. If they print more money to buy oil, those sellers may shift to a basket of currencies or gold. Losing the dollar as the World Reserve Currency would have unknowable consequences.

  8. Ron Swenson on June 21, 2020 at 4:42 pm

    One common fantasy is that the US will be able to cover any impending domestic shortfall by increasing imports. However, as domestic production has increased over the past several years, other countries such as China and India have been expanding their relationships with exporters. To increase imports, the US will not only have to pay more. It will also be necessary to displace recently formed mutual buyer-seller obligations, a process that will be somewhere between ugly and impossible.

    • art.berman on June 21, 2020 at 8:14 pm

      Hi Ron,

      Those are excellent points. China is trying to convert the oil market into one driven by buyers, not sellers.



  9. Ron Swenson on June 21, 2020 at 4:29 pm


    Right on! I’ve been calling everyone’s attention to plummeting rig count for the past couple of months, notably in a talk I gave last month to local folks on Covid-19, Climate Change and the coming Energy Crisis – https://www.inist.org/library/2020-05-16.Swenson.Covid19ClimateChangeComingEnergyCrisis.CCL.pdf

    I am going to use the details you’ve provided to pound the message home, as our local governments contemplate more investments in fossil fuel infrastructure. As ever, your contribution is very much appreciated.


  10. Bill James on June 21, 2020 at 4:13 pm

    Your article is an excellent summary data on the coming Oil Famine, a collapse of the oil supply chain.

    There can be plenty of oil, such as Syria (Oil Famine in 2010, population decrease of 27%) and Venezuela (2015, population decrease of 4.3%). Oil Famine occurs as oil’s long and capital intense supply chain becomes unbalanced.

    The radical reduction is US output and Rig Count of 266 makes certain there will be a radical unbalancing of energy in the US.

    Life requires energy. Less energy, less life.

  11. Ramiro Royero on June 20, 2020 at 3:18 pm

    Congratulation for this logical analysis. However there is another key point that is necessary to put on the table: the heavy crude oil. US needs This type of crude for his refinery matrix. “The party is over the US And Canadian Heavy dominance”?

  12. John M on June 19, 2020 at 11:38 pm

    Thanks for the analysis Art, your work and insight is appreciated. I wonder if you have any thoughts of the different decline rates for Oil as compared to NGL’s and Natural gas. For instance according to the EIA weekly’s oil production fell from 13,000,000 bpd on 3/27 to 10,500,000 pbd on 6/12, a decline of about 20 percent. For the same period, NGPL rose from 4,971,000 bpd to 5,253,000, a rise of around 5 percent. Other sources show declines in natural gas production of around 6 percent over a comparable time frame. I know shut-ins have probably been greater for oil than other streams, but doubt that explains the differences.

  13. JERRY on June 19, 2020 at 12:49 pm

    Thank you Art ,your message has been consistent for years , the Shale with High Decline rates , higher costs is not a Bed of Roses. Art , the Rig count being lower means lower Oil production and should also mean lower Natural Gas production . This will have a BIG impact on the USA Economic recovery

    • art.berman on June 19, 2020 at 1:18 pm


      It’s more complicated than lower production. You have to look at the system. Then you see it is over-supplied and is likely to remain so for some time.

      Lower gas production and lower gas consumption. Also, lower gas exports. Current over-supply is 20 bcf/d. This week saw the lowest gas prices of the century.



  14. Adam on June 19, 2020 at 1:45 am

    Prices may rise even skyrocket but it will be hard for them to stay high, as it will tend to trash the rest of the economy. We have built an economy that runs on cheap oil, we burn it like it’s infinite.

    • art.berman on June 19, 2020 at 3:10 am


      Price will not get too high before the government does something because the economy can’t function with high oil prices. Eventually, nationalization is the solution.



  15. James Kirk on June 18, 2020 at 9:20 pm

    If President Joe Biden follows through on his campaign promises to end fracking on federal lands and new drilling in the GOM, your future numbers on US oil production should be a bit lower. Of course sanctions removed from Iran and Venezuela under Sleepy Joe should add 2 to 3 million barrels to world supply and a peaceful resolution to the war in Libya another 1 million barrels. Since the pundits claim oil demand will never return to pre-Covid-19 levels, everything should be okay.

    • art.berman on June 19, 2020 at 3:08 am

      I don’t pay much attention to what politicians say during campaigns. Politics is best appreciated and understood as theater.

      The whole Democrat-Republican, right-left narrative is really dumb anyway. It assumes that half the population are dangerous idiots. Not a good basis for a democracy from my perspective. Life is long.



  16. HayekGreen on June 18, 2020 at 8:31 pm

    The Civilisation that is Built on Suspending Fundamental Senses in Humans to Survive Another Day, is Not Civilisation – But Rather a Circus of False Realities

    The green-paint, Art correctly identified, is highly energy-intensive. It requires a trip around the world to come to existence.

    Geography and distances – are Energy.

    The world today favours splitting itself into a Two-Tier World, Energy-lush and Energy-deprived, rather than increasing the price of oil – a cent.

    Price is no real indicator in our world since OPEC was formed in Baghdad back in 1960.

    That’s why Friedrich Hayek, and his thesis on ‘Changing Prices Communicate Information [and distorted realities]’, has made Britain almost burying him next to Sir Isaac Newton!

    Defunding the police in the US, making fleets of cars and energy-intensive systems shut-down – is a real indicator on the status of real Energy supplies, geography and distances – definitely.

    Physics is closing on the Western Civilisation tighter and tighter with Energy resource depletion.

    It is likely Physics and Energy-scarcity what might have brought the pandemic to the world, not the pandemic what is causing the fewer number of rigs!

    Why we cannot tell which one came first?

    Fossil fuels-distorted realities!

  17. Sean P Pruitt on June 18, 2020 at 7:02 pm

    Art, I’ve been following you for years. I always appreciate you cutting through the Bull $hit and telling it like it is. You were the first to talk about the decline of shale oil going against mainstream. Love this article!

    • art.berman on June 19, 2020 at 3:05 am

      Thanks for your comment, Sean.



  18. Mark Harvey on June 18, 2020 at 6:16 pm

    Thanks Art for a very logical summary of the current situation, and peak into the medium term. I suspect – barring some other crisis – herd immunity and/or a vaccine will allow crude demand to return in the medium term. According to your outlook, this will switch the past decade’s oil supply narrative from abundance back to scarcity. You have been predicting an eventual moonshot in prices for a while, but it now seems closer (barring some other black swan).

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