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Canada oil industry hit ‘big time’ by court smackdown

A Canadian federal court has overturned approval for a major pipeline project that one analyst says will impact the country's oil industry "big time."

The Enbridge Northern Gateway pipeline was originally approved by the Conservative government back in 2014, subject to a whopping 209 conditions. But according to Court of Appeal documents released Thursday, the government failed to adequately consult with aboriginal communities directly impacted by pipeline and tanker routes.

Now, the issue will be sent back to the Liberal cabinet run by Prime Minister Justin Trudeau, who earlier this year suggested he opposed the route for the Northern Gateway project, emphasizing the need for environmental protection and partnerships with Canada's indigenous groups.


Source: Enbridge, Canadian Press

In an emailed statement to CNBC, Enbridge said the company would consult with Aboriginal Equity Partners — a group of 31 indigenous communities who support the pipeline — and others involved in the commercial project to determine their next steps.

"The Aboriginal Equity Partners and our commercial project proponents are fully committed to building this critical Canadian infrastructure project while at the same time protecting the environment and the traditional way of life of First Nations and Metis peoples and communities along the project route," Enbridge said.

The pipeline was set to transport crude from Alberta's oil sands, across the western province of British Columbia where it would be loaded onto tankers on the Pacific coast.

Now, with the pipeline back in limbo, questions are being raised about how around daily production of 2.3 million barrels of oil will make it to international markets.

"Ultimately, it really impacts Canada's oil industry big time," Abhishek Deshpande, an oil and gas analyst at Natixis, told CNBC by phone.

"If rejected, it will affect the ability to send oil to the West Coast, which is crucial to get it to China or other Asian markets," Deshpande said. Canada is on the hunt for new markets, he explained, as appetite in the U.S. wanes in light of increased shale production.

Speculations about an eastbound pipeline to Canada's Atlantic coast aren't ideal, Desphande said, increasing costs and transport, time, especially with having to access the Panama Canal.

Canada's oil industry is feeling the pinch of low oil prices which are still hovering around $50 per barrel. On top of that, Alberta's oil is some of the most expensive to extract, and involves either mining the sands and then separating the oil in a processing plant or getting to the oil by pumping steam or solvents into the sand.

Deshpande said he expects further reduction in capital expenditures following the court ruling.

"If companies can't send oil out, and the U.S. can only take so much...there's only so much they can do."

"It definitely puts Canadian oil sands projects at risk," Deshpande said.