07/02/2016 11:46 EDT | Updated 07/02/2016 11:59 EDT

Northern Gateway Rejection In Court Hits Canadian Oil 'Big Time'

As climate activists and some aboriginal groups celebrate the Federal Court’s decision to revoke approval of the Northern Gateway pipeline, industry observers say the decision throws a big question mark over the future of the oilsands.

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

"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.”

calgary skyline

The Calgary skyline features the head offices of some of Canada's largest oilsands operators. (Photo: George Rose/Getty Images)

The Federal Court on Thursday said Ottawa had failed in its duty to consult with aboriginal people on Enbridge’s $7.9-billion pipeline, which got the green light under the previous Conservative government in 2014.

The Court said the government's consultations were "brief, hurried and inadequate," and left many relevant subjects off the table.

Climate activists and some aboriginal groups cheered the move, with some hoping this would mean the end of the 12-year-long saga over the pipeline that would carry oil and gas between Bruderheim, Alberta and the Pacific coast at Kitimat, B.C.

"At every turn you're going, you are seeing nails in the coffin of the Enbridge project," Peter Lantin, president of the Council of the Haida Nation, told CBC News. "I don't think there's enough room for another nail in the coffin."

peter lantin haida northern gateway

Peter Lantin, far right, President of the Council of the Haida Nation, speaks as other First Nations chiefs and leaders listen during a news conference about the Enbridge Northern Gateway pipeline in Vancouver, B.C., on Thursday October 1, 2015. (Photo: The Canadian Press/Darryl Dyck)

The federal Liberal government has 60 days to decide if it wants to appeal the Federal Court's decision.

Kitasoo Chief Doug Neasloss called on Prime Minister Justin Trudeau to scrap the project as a way to make good on his election commitment to renew relations between the federal government and Canada's aboriginal people.

Pipeline capacity maxed out

Despite the oil price collapse, the oilsands industry still sees growth for the oilsands in the years to come. A recent report from its chief lobby group, CAPP, predicts Canadian oil output will grow 28 per cent by 2030.

But pipeline capacity is nearly maxed out as it is, so “Canada's oil supply will soon greatly exceed its current pipeline capacity," CAPP said.

northern gateway map

A map of the proposed route of the Northern Gateway pipeline. (Map: Enbridge)

Enbridge still committed

In statements to media after the court ruling, Enbridge said it intends to continue with the project and said 31 aboriginal groups support it.

"The Aboriginal Equity Partners and our commercial project proponents are fully committed to building this critical Canadian infrastructure project,” Enbridge said in a statement emailed to media.

It added it’s committed to “protecting the environment and the traditional way of life of First Nations and Metis peoples and communities along the project route.”

renewables forecast

Wind and solar power is expected to become a much larger part of the world's energy mix in the coming years. (Chart: Bloomberg New Energy Finance)

Oilsands growth in doubt

Some experts doubt that growth will happen if oil prices remain low. They note Canadian oil has some of the highest production costs in the world, and if governments worldwide succeed with policies aimed at reducing oil use, demand for high-cost oil sources could dry up.

Business investment has shifted rapidly away from oil and towards renewable energy in recent years -- the result of both the collapse in oil prices and government policies around the world favouring renewables.

A recent analysis from Bloomberg New Energy Finance forecast that oil will see US$2.1 trillion in investment worldwide between now and 2040. Renewable energy will see nearly four times that amount, at US$7.8 trillion.

-- With a file from The Canadian Press

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