William Blair macro analyst Richard de Chazal and energy analyst Neal Dingmann discuss how rapid technological advances, shrinking inventories, and relentless demand—especially for natural gas—are reshaping the energy sector, driving new strategies and investment opportunities for the years ahead.
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Podcast Transcript
00:21
Chris
Hi everybody. Today is Thursday, September 25th, 2025. Welcome back to another episode of Monthly Macro.
This month we're turning our focus towards the evolving energy landscape. We’ve got a conversation, actually, with William Blair macro analyst Richard de Chazal and then our energy analyst Neil Dingmann. Neil actually just recently published a report called “Can’t Fight This Feeling”; Approaching Energy Cyclical Bottom, Likely Inflection Point”, which explores the structural shift in energy supply and demand and why we may be at a turning point for the sector, despite a consensus view that suggests otherwise.
So, Richard here will once again kick things off as a moderator. I thought that was a really great strategy last time. So, with that, Richard, feel free to take it away. I'll catch up with everybody at the end.
01:05
Richard
Thanks, Chris. And thanks, Neil, for joining the podcast. Maybe just as a brief introduction of Neil, for those of you who don't know, Neil is a veteran energy analyst with I think over 30 years’ experience on Wall Street. So, he's a fantastic new addition to William Blair, who just joined the firm on our research department a couple of months ago.
So, very excited to have another energy analyst at the firm, given just how important energy is to, you know, the macro landscape. I’m no energy analyst, so I thought maybe I'd, sort of, start with kind of a big picture landscape, sort of “scene setting” thing, and maybe you can, sort of, point out where I'm wrong or what, you know, what's not quite accurate.
So, from my perspective, it feels like, you know, up until recently we've sort of been in this cheap-ish energy world where the cost of energy has been coming down because of hyper globalization, because of technological innovation and fracking, and better energy efficiency and energy independence in the U.S. And we've seen, you know, the consumers share of energy, of total consumption, fall from something like 10% back in 1980 to maybe 3.0%…3.5% today.
So, it feels like we're sort of making progress. And energy has, sort of, been less at the forefront of our minds, if you will. But then, you know, since the pandemic, then since Russia-Ukraine, we've had seemingly much more frequent bouts of freaky weather, particularly in Europe this summer. And personally, my experience in Spain with the, you know, the whole country blacking out.
So, it feels like something maybe has changed structurally. And energy is now back, front and center, and we're being forced to think about it, you know, in a much more practical sense. And I think this is, you know, also been a really hot topic of conversation, certainly in on my side of the Atlantic with President Trump's recent visit to the UK. Just a couple of weeks ago, you know, he was promising billions in new investment in a bunch of new data centers across the UK. If you read the press and listen to the news services, everyone's really asking, you know, with such huge amount of energy demand required to fund these, to run these data centers, something like the amount of 250,000 to 500,000 homes, you know, where the heck are we going to get all this energy? So, I guess my first question really for you is, you know, is that about right? Has something fundamentally really changed in the energy sector over the last few years?
And just to tie that in to maybe an investment perspective, I also asked this because from a William Blair investment perspective, we've always kind of referred to our research coverage as growth stock investing. And a lot of clients in the past have, sort of, asked, you know, “how come you guys don’t cover energy?”
And the answer was always, well, it wasn't really viewed as a growth sector. But, you know, clearly, we think things have changed. So what has changed? Is energy now growthier or should we have probably realized that before? What do you think about that?
04:49
Neal
Very good set up and thanks for having me on today.
I think, you know, to unlock a couple things you say here. First, your point about the efficiencies is spot on. I mean, as you said, I've done this for a long time. And since the Shell revolution, you know, it hasn’t been really that long, maybe the last decade we've seen just some remarkable changes. I think more than anybody realizes.
I mean, I’ll point to the Permian Basin, the biggest oil growth domestically here in the States. And, you know, the key is you can see things that, such as wells that would have taken three to five months to drill now are taking five to six days. I mean, it's just remarkable
You go out to the Rockies, the area called the DJ Basin. they're drilling wells in two to three days, in some cases, one to two days. I mean, so again, your point about the efficiency is I do think that's continuing. Is it going to continue at the pace that we've seen? Very unlikely because we've just seen such, such a just, you know, increase over the last, especially the last three to four years that I do think you're going to continue to see some, especially for the better companies as I talk to these guys.
You know, again, I'm actually in Montana today. I was in Midland earlier this week. I generally travel quite a bit. And, from what I continue to hear, there still is a number of efficiencies. But what's interesting this year, when I talked to a lot of my companies, really, they say the efficiencies this year, they're not, you know, not terribly high, but they're just enough to offset some of the, the higher prices of OTCG because of the offshore tubular goods and services because of the tariffs. So, really, you're not going to have a huge deflation moment this year for many of these companies because deflation. But I don't think you're going to have inflation either. So again, I think, at least, it'll help them keep costs, maintain costs this year.
But really, I think the key to your question, I think there's two things that’s causing this. First, the, you know, what I call a secular growth story that's shaping up. We believe, not only, I mean, again, look, the one that I think is evident is for natural gas. Why do I think that a lot of the gas and gas-related stocks are going to continue and be much more growth stories?
I mean, you have now a base LNG demand which could drive or add additional 10% to potentially 20% more based demand growth. And then you have a number of data centers, obviously AI in the data centers that are coming out. So, you couple those two together and you have, what I believe, is the secular demand story that we, you know, certainly haven't seen in my 20, you know, as you said, 20 or 30 years doing this.
So I think, number one, you have the demand-side that's, sort of taking place, or secular demand, as a lot of my investors like to point out is something that I think is, you know, one could even phrase that as a once in a lifetime opportunity, for some of these potential broadly gas-related stocks.
I mean, that could be miners, that could be services, that could be, you know, upstream, downstream, midstream, you name it. Anything gas related, I think could benefit from this. But also, we think, on the demand-side, maybe not quite to the same degree, but we do think even oil, because you think about oil, it's mostly the refined products.
You're still going to have to have that for, you know, again, could they, I don't know, a decade maybe two decades from now start to, you know, somewhat go away? Possibly. But in the next 10 to 20 years, or at least the next decade, do I think the demand for refined products is going to be any less?
Absolutely not. So, I think number one point to your question Richard, is the demand is now at such that it's not going away. It's not changing. And I think that's what's going to cause, and that's what has caused, this group to be much more of a growth-oriented stock. So, I think that's what's going to be very, very interesting on this.
And then number two, and equally as interesting, maybe not quite as hot as the demand-side. But I think number two is on the supply side or specifically, inventory. And really what I think has changed in the last five years is that, you know, the amount of tier one inventory, whether it, I'm just now going to refer that for oil or gas, the amount of tier one inventory has dramatically shrunk.
And, you know, again, we're seeing especially domestically here in states, a lot of my companies that have generally just been exclusively domestic are now looking international, and again, whether that's offshore, whether that's onshore. Which tells me they realize that the amount of tier one U.S oil inventory, they realize that it's dramatically fallen and they're going to have to find assets elsewhere.
And then number two, well, gas I would say is somewhat the same. I, look, I think there's much more potential gas inventory. A number of companies, whereas in, you know, the oil companies, they'll highlight maybe a decade, but the actuality is it's probably less than five years if oil is going to be $70 or $75 or less, whereas on natural gas, they highlight two plus decades of inventory.
But the actuality is if natural gas is less than $4 per BTU, then they probably have actually less than 10 years, maybe they still have five years. So, I do think there's a bit more natural gas inventory, but even that, too, call it and I'm referring to the very highest quality or tier one inventory, I think is getting less and less.
So again, you couple that insatiable demand, especially on gas side. But I think also is going to continue on the oil side. You couple that insatiable demand with a limited supply out there, and I think it gets to the crux of your question, Richard.
10:51
Richard
Sure. And I mean, just, a side question, I suppose, the Strategic Petroleum Reserve seems pretty empty at the moment. I mean, is that is meaningful in any way? Or is that just a small amount that doesn't it doesn't, sort of, tip the scales?
11:05
Neal
I would say both for domestically and, you know, in Asia, I mean, of course you’ve got to think about their SPR that they've been trying to fill, as well. I think what that does is cause, because you mentioned earlier about geopolitical conflicts causing prices to, you know, maybe not have quite the spikes that we've seen in commodities in the past, but at least cause, you know, a bit higher spikes than what we've seen in the prior one to two years.
I think that's what's going to continue. By having a very low, sort of, SPR, both domestically and internationally, you don't have that cushion when you have, you know, all of the sudden, some of these, you know, events that happen very quickly. And by not having that cushion, you start to see more of these, you know, kind of near-term spikes.
And I think that's going to continue to be the case.
11:54
Richard
So, I mean, yesterday, I saw the Dallas Fed just released its quarterly energy survey, and some of the commentary in there was pretty stark. These guys were not overly optimistic. But, I mean, I think in your report, I guess, it sort of highlights that you’re definitely more contrarian on that sense, and you kind of point out, for basic reasons, why that's the case.
And I think they were pretty good. Would you mind just highlighting those?
12:27
Neal
Sure. So, you know, one, when you start with the obvious, you can look at the Dallas Fed, you can look at the EA, just how different, you know, how wrong they'd been on a lot, especially on their demand forecasts. They've been wrong almost 50% of the time. They’ve, in fact, undershot what the demand is in some cases by, you know, sometimes 30% to 40%.
So, number one, their forecast ability has been, kind of, on the sideline. Number two, just the amount of, you know, I think the efficiencies that you talked about, or we just talked about. Yes, you're able to see some efficiencies, but not near the material efficiencies that we've seen in the past decade. Number three, just what I mentioned, inventory.
Inventory is, certainly, tier one inventory, I should say, is going away very, very quickly. And then just, you know, number four, just again, you know, companies’ desires to have a very, very, pristine balance sheet, which, you know, again, very different today. I don't know, I mean, people seem to forget five plus years ago when, you know, it's funny, what I always used to say about my company's five plus years ago, you know, for an energy company, especially an EMP exploration and production company, you give them a dollar and they find a way to spend $3.
And, now they realize that, you know, the key for most of these companies is just to maintain flat production and do it the cheapest way possible. But I think what most investors forget, energy is very unique. It's the only sector where if they stand still, they still have to replace about a third of their production.
You know, it's like, you know, if you would have some retail company and if they sat still a third of that, those items on the shelf would just still disappear each year, and they would have to continue to replace those. And so that, that, you know, again, that's the challenge, for my companies, is even for them to say, “Hey, we're going to maintain flat this year.”
I mean, in fact, I think the stat in the U.S. right now, is, right now, you have about 13.5 million barrels a day of production, and you have to replace at least 5 million of that, nearly 5 million of that a day, just to keep that, sort of, production at a flat level. So again, what I always like to say is you have a treadmill, which, you know, in the last few years has been turned up a little bit higher in prior years.
And it's very hard to stay on that treadmill. Just to stay flat on that treadmill, you still have to have a fair amount of new production annually.
15:06
Richard
So, thinking back to, you know, the, the energy oil patch crisis, what was it, sort of, 2014 to 16, sort of around then? I mean, that, I guess, caused all these companies now to restructure and they have much stronger balance sheets, as you point out. So, is the narrative less about, you know, energy prices going higher?
So, you're not you're not overly bullish on energy prices, are you? It's more of just the companies themselves. They run more efficiently stronger balance sheets… that kind of thing.
15:41
Neal D
Yeah, that fair to say. I would say the new norm, where, you know, previously I think, you know, it was maybe, I would call today, 65 is probably, you know, call that the new 85. But because of these efficiencies and other things that we've been saying about these companies today, you know, look, my better companies are still making a very healthy profit and generating strong free cash flow at 65.
And you know what we've seen, there's been a number of smaller companies who would break evens higher than that. And ultimately, they end up going away and getting, you know, bought by somebody else that is more efficient. And, you know, look, I think that's just the case. Again, I think we're going to even see some more of that. You know, you didn't ask, but I think what could happen again, not just domestically, but I think internationally, even across the pond where you are. I think, you know, we might not see as much private M&A, but I think we're going to have to continue to see more consolidation. And I think the reason for that consolidation is twofold. I think one, just the limited amount of, you know, incremental inventory that folks can find, private or elsewhere, is limited.
So, they're going to have to go looking for new companies or merge companies, instead. And then, you know, I think just number two, you still have a few of these higher cost, you know, companies with higher oil, oil or gas breakeven levels out there, and they're just not going to be able to survive in, you know, in an environment where we're in right now.
17:11
Richard
So, you reckon the breakeven roughly is, sort of, $65 a barrel?
17:17
Neal D
Right. Or, depending on the company, I would tell you some of my best companies, I would say yes, on average, for a lot of companies, I would say that's kind of the norm. My best companies right now have, you know, probably somewhere just under $40. So, you know, quite a bit lower and but, you know, and again, there's some companies that like, you know, that I'm thinking of, that probably are still over $70.
And those are the ones that I'm thinking probably could go away. Same thing for natural gas. There's a couple that I think are around $2 breakeven, and there's others that I'm thinking of that are probably almost close to $4 breakeven. So, you know, I think it's just going to be that natural tendency. And, you know, look, we're seeing this, I think, I can't overemphasize the lack of inventory enough.
In fact, what I want to point to is, I don't think a lot of investors have realized this. A lot of these states, especially New Mexico, Texas being the two largest Permian producers, New Mexico just had a state sale. The most recent one was September 16th, and some acreage went for $176,000 an acre.
That's the highest ever paid for a one acre in any of inventory in the U.S. You know, the prior record was just a month ago at 156, and the prior record to that was 4 or 5 years ago at $105,000 an acre. So, it just tells me that if now companies are paying, you know, some of these crazy numbers, indicate it was for a small amount and it was probably strategic why they wanted that.
But nonetheless, to see these record prices paid tells me the scarcity of inventory. So, again, back to that original question. I think everybody's aware of the potential insatiable demand, especially with natural gas. But I think what they forget is, you know, maybe not quite as much, but certainly out there, the amount of supply is going to continue to be very limited.
And that plus that insatiable demand, I think, is what's going to cause the, you know, these companies to continue to have such great growth records.
19:27
Richard
And then, with President Trump, you know, he seems to really want to have energy prices much lower. He's talking about, what, $40 a barrel, even. Is that, I mean, what influence does he have there? I mean, deregulation, you know, maybe that we'll get some more, you know, cut off or help the cost picture there to bring that breakeven rate down? Or, you know, more drilling permits and that kind of thing?
So, does he realistically have much influence there or is it really just hope and a dream?
20:04
Neal D
I think it's, you know, somewhat in the middle, probably closer to hope and a dream, only because, again, you've already had a lot of the federal, you know, again, they shut down for a minute. Now, most of the federal onshore acreage that's able to be drilled is being drilled. You know, a lot of the drilling credits, none of that has gone away. So, a lot of these incentives and, you know, options to drill on federal and other things are out there. What I seem to think and, again, you know, it's hard to say, is you wonder what influence the administration or U.S. administration has had internationally because it doesn't seem a coincidence to me that you've had OPEC+, you know, in a time where things were a little, you know, had been, a little bit constrained, all of the sudden, they announced that they're going to continue to add more and more barrels. And so, you know, again, maybe being the conspiracy theorist in me, I think it's kind of a just an odd timing for them to do this.
What I would add, you didn't add on this, but I think the very interesting part about all that OPEC+ is that they can keep, I mean, look, OPEC+ has two big production things out there that still can be unwound. 1.65, that's the latest one that they're going to address in October and then another 2.0.
So, there's technically still 3.65 million barrels that's being voluntary shut in. But what I would point to is the prior 2.2 million that now has been allowed to come back online. Not even all that has come back online. So, I think the million-dollar question is, are there physical barrels that could actually come back if OPEC+ would unwind all of that tomorrow?
The remaining 3.65, I would suggest, I don't think much of that would even come back because of either not having the reserves or having too high a breakeven. A lot of these members just would not be able to bring that back.
So I think the answer to the question is think of the U.S. administration. I think they've had more influence, or they have more influence internationally, with some others, than other previous administrations have had. Because, again, I don't find it any coincidence that, as this is going on that, you know, OPEC+ is trying to ramp up or unwind a lot of its voluntary shutted production.
22:31
Richard
And, that's on the supply-side. And then on the demand-side, you think he's had a lot of influence? So, for example, Europeans now, you know, he's trying to strike a deal with Europe. They're trying to get their tariffs lower. He's saying, “We'll lower your tariffs if you buy X amount of LNG or energy from us.”
Are we seeing any signs of that actually showing up?
22:51
Neal
I think with that, in fact, though, what I think the administration is missing, if he wants to have prices lower, I think the problem is what the administration is doing, either internationally or domestically with tariffs internationally, and again, with the data centers and LNG. You know, when I look at the U.S. is, they're actually making it and continue to make it, some of the, you know, rules and regulations, cutting back on that.
So, the timing to obviously permit, you know, one of these facilities is becoming much more reasonable. But again, I think what they're going to find is by, you know, being sustainable, having sustainable power, much like having sustainable energy, but having the same sustainable power to, you know, power these data centers and other things alike. I think they're going to find that, you know, there's just not the, again, not enough inventory here in the States.
And again, by doing that, even if you lessen the regulations, it's still going to cause prices, I think, in the near term to go up because just the amount of that insatiable demand for power and thus natural gas and even maybe refined products, again, I don't think that that's going to go away. And even if they lessen the restrictions, I still don't think that, you know, enough of this can come on in a short amount of time, and the result is going to be obviously higher commodity prices.
24:14
Richard
Another sort of Trump-ish related question, if I may, you know, I think this administration's, you know, one of their goals is to, you know, Scott Bessent talks about COVID was a test for the administration or for the country, with, you know, their ability to withstand, call it a “kinetic war.”
And, you know, his version is that the U.S. failed that test, so now it's trying to position itself in all sorts of strategic areas like microchips and whatnot. And, then we see the government now taking up equity shares in strategic areas. We haven't really seen anything in energy yet, but obviously it's a strategic area.
I mean, are people talking about that now? Or is there, I mean, ideally you don't want to be partnered up as an investor with the government, someone who, you know, doesn't really have a profit motive in the same way you would. But-
25:15
Neal
Well, and I think that's exactly right. So, the answer is like, I think for some minerals, certainly more of the critical minerals and such, you know, we've seen that, and I think we're going to continue to see that. I think, again, given China's dominance, I think obviously that's the number one goal. I think there's a, you know, something out there.
I read that, Trump, by January 1st of 2027 wants, you know, again, where the demand for, Chinese rare earth would be virtually, you know, nil. And I think that's going to be very, very difficult. But, you know, again, I don't think this will be the case for natural gas or, you know, oil only because just how prevalent, again, even though inventory I believe is much less than it was, it's still much more prevalent than, you know, what we've seen, on the rare earths.
And, you know, I think what will be interesting and worth watching is, almost that way you and I started today, is to watch how much these oil and gas cost or well cost have gone down in the last decade or two. It just continues to amaze me. And I think that's what's going to be very interesting when you start looking at other minerals in other commodities. You know, there hasn't been the incentive and so we haven't seen that, you know, sort of, technology placed into those areas.
But it's going to be very interesting as the demand, and you could see some of the importance is shifting to some of the other commodities. I think the real interesting question is going to be, will we see, you know, the pricing come down as dramatically as we have for oil and gas? And, you know, I'd suggest, look, I think, yes, it’ll come down.
Can it come down that that materially? You know, time will tell. But again, you know, I think it goes back to you and, you know, kind of that question you pointed out the efficiencies. I can't say enough about the U.S. oil and gas companies, how efficient, what that's done. I mean, if you would have asked me even 20 years ago that, “Would the U.S. be energy self-sufficient?” I would have said absolutely not, and that we would have continued to be a rather decent size importer.
And obviously, that's gone away. So again, maybe it's the same thing, maybe it's 10 or 20 years away, who knows? But I still think for other minerals and other commodities, if the same know how can get into that, it will be very interesting to see if they could bring the cost down as dramatically.
27:44
Richard
I think, you know, from my perspective, looking at the productivity numbers for the aggregate U.S. economy, what's happened in the energy sector has probably been one of the most underreported things that has taken place over the last 20 years. We just seen productivity data for the U.S. just getting worse and worse and worse. And, I think we've been at a turning point now, but energy, efficiency and what, you know, these companies have been able to do has been absolutely astounding if you actually look at the numbers, but it just gets buried in terrible productivity for the rest of the economy.
I have to ask about tariffs. Unfortunately, you know, most of these companies seem very domestic, but obviously, I guess tubular costs are going up. Is that the main area?
I mean, are they being deeply, adversely impacted by these tariffs? Or is it just noise and the, sort of, wade through the uncertainty for a while and we'll get through that, or how are they feeling about that or are you feeling about that?
28:44
Neal
That's right. It hasn't been material. They called the OCTG (Oil Country Tubular Goods). You know, that's the piping and all these other things needed to, you know, in these wells. You know, fortunately, it's not, the main price component by any means. So again, I would call it 5%. You know, again, it's not nothing but it's, you know, call it 5% of the well cost is what's gone up and is what I mentioned earlier. Fortunately, these companies continue to see some efficiencies, which is just amazing to me that they keep squeezing out more efficiencies, even on top of what they've done in the last decade.
But just enough so that they’ve, sort of, offset this 5% OCTG, you know, higher price due to the tariffs. So that's kind of what we've seen for most of those. I mean, is there a chance internationally that could change? Because look, I mentioned to you earlier, there's some of my bigger U.S. companies that are now looking abroad.
First time they've done this, probably in over a decade, because they think in order to find a large enough asset, they're going to have to go abroad. And so, look, I think the real questions would be if they do that could, could tariffs internationally and, you know, maybe some larger tariffs internationally, start to play?
And I think there is a possibility of that. We haven't seen that yet. But, domestically I'm not terribly concerned, but internationally I do think there's could be some talk.
30:09
Richard
The retaliation play, as it were.
30:11
Neal D
Correct. Exactly right.
30:12
Richard DC
You know okay. So, we’ll probably wrap it up. If I'm a U.S. consumer or thinking about inflation prices going forward or the Fed, from what we've sort of discussed today, it doesn't seem like we should be overly worried about the inflationary impact of the energy markets.
30:31
Neal D
No. That's right. I think, again, because of what's going on, I call it the secular demand story. I think what I would want to leave investors with is, I think we have a, you know, I don’t want to say a once a lifetime, but once in a several decade, a secular demand story that is not going away, specifically around natural gas and natural gas related products.
30:52
Neal
I think you have that number one. Number two, I do think you have even strong demand on the oil and refined products side. That's not going away. You couple that with a limited inventory. I don't have those concerns because of that, because I do think that you're going to continue to have a sector that's going to have a nice growth pattern for at least the next five years, probably the next decade, until we see what happens after that.
31:19
Richard
Okay, good to hear. And thank you very much.
31:22
Chris
All right. Well, Neal, Richard, really appreciate the time. It’s been great. For those interested in reading Neal's report, you can request copy visiting Williamblair.com/contact-us. Thanks for joining and we'll be back next month.