Australia’s crude oil production will continue to decline, a global energy analyst observed, but the push forward in LNG production and exports will not be weakened by the swoon in commodity markets.

“We actually think that, contrary to what you might think because of the decline in oil and gas prices, many of those will actually go ahead simply because they’re too far along the line to now stop,” Julius Walker, Vienna-based senior consultant at JBC Energy GmbH, told attendees at the recent 2015 Platts North American Crude Oil Summit in Houston. “Once you’ve sunk a lot of money into new projects, you go ahead. So for the next five years, at least, we will see that continue and Australia will become a substantial new source of LNG.

“After five years, some of the stuff that was due to come online may not happen. We’ll have to see.”

Further along the energy value chain, Walker sees Australia as part of a shifting dynamic as its refineries are shuttered.

“On the refining, downstream side, Australia has been one of these places that has been historically self-sufficient in refining,” he said. “It’s been one of the places that has closed several refineries—it just last year closed another refinery—there may be more to come. It’s actually become a significant net importer of refined product.

“One of the interesting things, for example, that we’ve seen recently is for the first time maybe ever, India sent product cargoes to Australia,” he noted. “This is one of the interesting new things we see happening as the balance among these countries shifts. India is a significant exporter of product and exports quite substantial volumes of products to the U.S. East Coast. It’s got top-quality refineries, it’s got low labor costs, it’s close to the Middle East. We’re seeing a big shift in dynamics and that will just continue in Australia.”

JBC’s position on crude oil pricing also stands apart somewhat from many consulting shops.

“Our take on why crude prices have recovered recently is that we think markets are essentially tighter than most people realize,” Walker said. “They’re not very tight at the moment, but we think they’re slightly tighter and will tighten again. Indeed, by the end of this year, we think prices will be slightly higher again—Brent around $70, WTI around $60. Further out, we see prices returning to $100-plus in the not-too-distant future—around 2018.”

Economists and analysts are trying to get a handle on how this downturn will play out, given the new element of U.S. shale production.

“Economists like to say that both demand and supply are not very price elastic, which is true,” he said. “With shale, that is beginning to change. That is quite a bit more elastic.”

Walker forecasts relatively little change in price for the first half of 2015, but substantially more in the second half. He does not think U.S. shale production will shrink, but rather grow less than previously expected.

“In sum, this adds up to a market that is around 600,000 bbl/d weaker than we would have seen a year ago,” he said. JBC perceives global crude storage, with the exception of Europe and Japan, to be on the rise. This will have implications later.

Past the downturn in 2015, JBC sees a global crude oil and natural gas price recovery in its near-term forecast to 2020. Those higher prices will stimulate U.S. shale producers and others to boost production. The escalation in prices will likely be slow as a result of the build-up in inventory.

“The key area is 2016 to 2017, when year-over-year demand growth will exceed supply growth—not massively, but still significantly,” Walker said. “We think market tightness will return by this time. We think there will be stronger demand, lower supply growth. This will take a while to have an impact on prices. As a response to the tightness in 2016 to 2017, it spikes to over $100 per barrel in 2018.”

Contact the author, Joseph Markman, at jmarkman@hartenergy.com.