1. Buyer Be There
For LNG: sell first, produce it later.
A industry joke is there three LNG permits you must have: DOE, FERC and Adam Smith Permit. The first two are easy to get because they authorize your LNG project to lose money in a environmentally sanctioned manner.
Note that a FERC permit alone cost $100 million dollars and the US Government is happy to accept that check in the spirit of American laissez faire without inquiring to the interest of would-be buyers. You have to actually be able to sell the LNG to make money. Financiers, banks, venture capitalist and private investors will not lend money or put capitol into a LNG project without buyers.
2. Oil is Global, Gas is Regional
Gas and LNG prices are set regionally where the US Henry Hub Prices are less than Europe and Asia and the determination of the price is very much regionally calculated. The availability of LNG infrastructure is not nearly as prevalent either hence regionality.
Determining the economic viability of X oil project is simple* because economic projections against CAPEX, OPEX and transportation cost are calculated using the appropriate benchmark (as appropriate to the oil in question, Sweet, Light, Sour, Heavy) no matter the actual location.
LNG/natural gas projects are much much more complicated: there are a minimum of 3-4 global benchmarks to make projections on (LNG can be shipped long distances relatively cheaply), for example: Henry Hub (HH), UK (NBP) and Japan (JKM), where a wide range of disparity exists between these benchmarks.
Henry Hub is priced in gas-on-gas terms where as the Asian and European markets tends toward being some version (depending on time datum) of half and half/not half and half mix of Oil Indexation pricing and gas-on-gas pricing. This mix makes pricing projections difficult and tending toward WAGs, as in Wild @ss Guesses.
This is extremely different from the oil market: the price for Brent Crude, be it spot or futures, is the same whether it is being traded/sold in New York, Tokyo or London. While futures for Brent Crude inherently have a range, that range rarely includes extreme outliers and tend to intersect with the spot price making projections relatively accurate* in comparison the natural gas trading.
*The only good indicator for following oil markets is comparative inventories, the relative strength of the dollar which broadly is the overall dynamic of currency markets, any other projections are gambles on Hurricane season and who/what/where in the middle east is at war: educated guesses at best.
3. Dating vs. Marriage
If the oil market/geopolitical climate/regulatory environment has changed such that a crude oil development is no longer profitable, operators have options to adjust, depending on the situation. This may entail shutting in wells, cancelling frack jobs, freezing capitol expenditures, personnel lay-offs, or actually selling off the wells/leases. To be sure adverse financial implications are endured. The situation is the equivalent suffering the short-term effects of a break-up.
In the case of LNG, if the oil market/geopolitical climate/regulatory environment has changed such that a development is no longer profitable - there is simply no out due the scale of capitol invested. If a company is to get out of LNG project, the financial "divorce" will equivalent to an ex-spouse getting everything, garnishment of future salary and the kitchen sink. Think Rupert Murdoch and Wendi Deng. Hint: the company is Rupert Murdoch.
This "no-backsies" policy in LNG is due to the huge investments into pipelines, loading terminals, liquefaction plants. It's the infrastructure that is the knock out blow. Building a liquefaction plant is $10 - 15 billion dollar endeavor. To put that into perspective, $15 billion in 2016 is equivalent $3.77 billion in 1977 dollars. The Alyeska Pipeline cost $8 billion in 1977 dollars. A therefore liquefaction plant cost only slightly less than half the cost of the Alyeska Pipeline which is the largest privately financed project in US history. Though it seems between now and 1977 something should have beat that record? Any thoughts on that?
Consider that the price to build a land gas pipeline as of 2015 is $5.24 million/mile. A 2016 IHS report puts the cost of a crude oil pipeline at or above $2.5 million/mile (depending on location and pipe size). This cost differential is due the necessity of compressing natural gas to 6 atmospheres of pressure.
For all of these reasons approximately 2/3 of the price paid for LNG is due to the infrastructure. It can be said that LNG is a prisoner to the cost of infrastructure.
4. TO MOVE OR NOT MOVE, THAT IS THE QUESTION
Power generation by utilities, industrial uses include fertilizer, plastics and certain chemical manufacturing. Otherwise it is put into distribution networks to homes to power water heaters, dryers, gas stoves, heating/air conditioning et cetera.
Note that 0.1% of Natural Gas is consumed as vehicle fuel in the form of Compressed Natural Gas (CNG). CNG is very efficient and promising and has been implemented in several cities for buses used in public transportation.
Electricity is the largest end usage of natural gas, short term fluctuation in prices do not generally effect large power utilities as they purchase LNG at a fixed price contract with those contracts having terms between 5 and 20 years. This becomes an issue when natural gas prices drop dramatically and the utility is stuck paying far above the market rate. Utilities in Japan fell into this situation and Japan's trade commission aggressively re-negotiated contracts.
So 0.1% of natural gas is used for transportation, and while there is strong growth potential, compare that to 75% of crude oil is made into transportation fuel: gasoline, diesel and jet fuel respectively.
Oil is often over-priced/valued because a certain vega exist in the market due to fear of wanting for oil - what is referred to as in-elastic demand. Goods, services or people cannot be moved without oil - it literally moves the global economy. It is for this reason that even minor geopolitical events have the effect of causing oil prices skyrocket regardless of the supply and very small supply differentials can exponentially spike the price.
A shortfall in natural gas supplies will give the CEO of fertilizer company a migraine but aside from increased gas/electric bills for those on natural gas distribution/power grids, the greatest impact to most everyone is their Dad angrily cranking down the thermostat and grunting about how he's not paying to heat the house like Tahiti.
Should electric vehicles become more dominant in the future, the current existing power grid capacity will have to be upgraded considerably. Only natural gas turbines (or nuclear, but that probably isn't going to happen) would provide the necessary installed capacity should everyone in Seattle plan on plugging in their Tesla. This would fundamentally change the market and make the economics of natural gas and LNG much more competitive.
5. Market Size Matters
In Oil, the top players are Saudi Arabia, the United States and Russia. The holder of the #1 Crude Oil Producer is matter of the historical datum taken. The latter are the global heavy weights of the oil market. Despite the number of other oil producing countries, No one else comes even close.
Politically, the United States and Saudi Arabia are allied against Russia/Former USSR. Economically, it is every man for himself - Saudi Arabia has no warm feelings whatsoever for American Shale Producers. Saudi Arabia heads OPEC which has historically been capable of ganging up and turning the market to support or drop the price as it sees as fit.
While OPEC is powerful, not one single oil producer has the power to double/triple their production as to flood the market and create chaos.
The size issue for LNG projects is very different (see figure below). Let's start with Producers. There is one mega exporting LNG producer: Qatar with a trailing second that is Australia. In comparison, the crude oil market's cliometric production division seems quite equitable.
The disturbance in the oil market that OPEC has the power to make in comparison to the power that Qatar has in the LNG market is like comparing the destructive power of 3-year old with fingerpaints to a hurricane.
Qatar is a massive natural gas well that is also doubles as a country. Furthermore, it's coastal location in the Persian gulf is ideal for shipping LNG worldwide. Because of it's LNG capacity, Qatar makes OPEC look wimpy. Because natural gas (and a little bit of oil and Al Jazeera) is all Qatar has, it was aggressively investing in LNG infrastructure decades ahead of anyone else hence it has paid off it's initial infrastructure investment and has since been raking in cash. Qatar can dramatically increase production and flood the market. Qatar is a very small rich country hence it can withstand years of depressed gas prices without breaking a sweat.
This negates producers from being able to negotiate large-scale "Costco" type contracts with any large customer and requires they negotiate a number of lower volume contracts with a variety of buyers. The economies of scale principle applies here and further impacts the economics of LNG projects.
6. Thermal Content
However, to understand why despite complicating economics, LNG has so much potential, let's look at the Btu content of LNG.
(1 Gallon LNG = 82,644 Btu. 1 bbl = 42 gallons. )
*I genuinely dig LNG projects, the "nuanced" point I'm trying to explain is why they are so economically difficult.
If the literal energy "bang" for buck is considered, natural gas - even at prices on parity with oil ($/mmbtu)- is a very good deal and therefore the upside to natural gas and LNG projects should be considered.