The acquisition of a nine per cent share of the Athabasca tar sands’ marquee Syncrude operation by Sinopec (which is owned by the Chinese government) signals a new willingness on China’s part to sink billions into the future development of high-cost oil from tar sands. It coincides with the granting of a $20 billion soft loan by China to the Chávez regime in Venezuela, which will at least in part be repaid in oil from that country’s Orinoco tar sands.

Unlike Canada, however, Venezuela is not too fussed about whether they will export raw bitumen or processed synthetic oil to their Chinese customers. In Canada, of course, final approval of the Sinopec deal by the country’s Foreign Investment Review Agency hinges at least in part on compliance with Stephen Harper’s pledge not to export raw bitumen to countries with laxer carbon standards than North America’s.

Might I remind Prime Minister Harper that the price for carbon emissions in China today is exactly the same as the price for carbon emissions in both Canada and the United States? When that changes, as it ultimately must, it’s nothing a carbon tariff couldn’t readily handle.

Carbon issues aside, common economic sense dictates that Alberta tar sands producers should start thinking a whole lot more about supplying China either bitumen or processed synthetic oil through a pipeline to the Pacific, and a whole lot less about supplying their traditional market in the United States.

Ninety per cent of every new barrel of oil produced in the world gets burned as transport fuel. If you compare China’s auto sales with America’s sales, it’s not hard to predict where tomorrow’s oil supply will be headed. China’s oil consumption has grown from just over two million barrels per day in the early 1980s to an estimated nine million barrels per day this year. And at the rate that its vehicle market is growing, the country could double its oil consumption over the next decade or so.

By comparison, take a look at where US oil consumption is going. While Chinese car sales are growing explosively, this year there were four million fewer vehicles on the road in America than there were the year before. With triple-digit oil prices just around the corner, you can expect to see another 40 to 50 million American vehicles taking the exit lane over the next decade.

So if you are a tar sands producer, Sinopec or otherwise, which market do you think you should be pursuing? One in which demand has already peaked and now faces irreversible decline, or one where oil consumption per capita is only a tenth of North America’s, but where vehicle sales are growing by 50 per cent a year?

And with good reason.

To be sure, there is room for substitution between the two fuels. When natural gas is cheap relative to oil, it encourages petrochemical producers to switch from crude to natural gas feedstocks. And it encourages households to switch from burning oil to burning natural gas to heat their homes. Cheap natural gas also encourages utility companies to switch from generating oil-fired electrical power to natural gas-fired power.

But what it doesn’t do is encourage operators of cars, planes, trucks, railways and ships to switch from oil to natural gas. Not that they wouldn’t want to do it at today’s prices if they could, but unfortunately natural gas can’t be used as a transport fuel. And over 60 per cent of all the oil burnt in the world is used precisely for this purpose.

On top of that, almost 90 per cent of the growth in world oil demand every year comes not from the need for home heating oil or for chemical feedstocks, but from demand for gasoline, diesel or jet fuel, for which there is no substitute.

How sustainable today’s low gas prices are remains to be seen. While the advent of shale gas has changed the supply equation, we have not stress-tested today’s prices over a full cyclical rebound in the demand for natural gas from either industrial users or power-generating plants, let alone through a bitter-cold winter. Until we do, it’s premature to herald a new era of cheap and abundant gas.

But even if today’s natural gas prices are sustainable, they are no more likely to bring down oil prices in the future than they are today.

The reason natural gas can’t substitute for oil as a transit fuel is that oil packs four times the energy density that natural gas does (think gas tanks roughly four times as large). And while it’s possible to raise the energy density of natural gas by liquefying it, you need to cool it to –162 degrees Celsius to do so, which requires a tremendous amount of energy. And even then, liquefied natural gas is still only 60 per cent as energy-dense as diesel fuel or gasoline.

Until we can find an economically efficient way for natural gas to pack a far greater energy punch, all the shale gas in the world won’t stop oil prices from getting back to triple-digit range.