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Canada's pipeline paralysis hits Trudeau hard

A Canadian court has blocked plans for a pipeline expansion

Plus ç a change, plus c'est la même chose, goes an old French proverb.

In the case of the Trans Mountain pipeline expansion (TMX) it's more a case of deja vu all over again after a federal court judge effectively quashed approvals for the C$7.5bn ($5.75bn) conduit, which would have tripled existing oil sands capacity to the country's west coast to 0.8m barrels a day.

In its decision, the court ruled the federal government failed to consult Aboriginal communities living along the 1,150 km route to the sea. It's a huge blow for pipeline proponents who have spent much of the past five years fighting protests to wring permits from various levels of government.

No matter that TMX coasted through 17 previous consecutive court victories. All it took was one to derail the project. Now the only other alternative is to restart the appeals process from scratch-despite more than C$1bn ($770m) already spent on regulatory issues to date-or appeal all the way to the Supreme Court of Canada. The latter option faces long and potentially costly risks if it fails.

Despite the setback, TMX is still seen as vital if Canada is to open up new overseas markets for its crude and reduce its reliance on the US as its sole customer. Bottlenecks to the Gulf Coast have created a glut in the US Midwest that have created large price discounts to global benchmarks-sometimes a much as 50%—that is directly costing Canadian producers up to US$20bn a year.

The situation has become so acute that Prime Minister Justin Trudeau has insisted the project is a vital national and economic interest despite bitter opposition from his own supporters. It is a position that has tarnished his environmental credentials both at home and abroad.

Yet Trans Mountain has become such an obsession for the finance department, that in May it dipped into the public purse to buy the entire project from Kinder Morgan for C$3.5 bn ($2.68 bn), not including the price tag for the expansion itself and associated legal costs.

By no coincidence, Kinder Morgan shareholders in Texas approved the sale within minutes of the court decision in Ottawa.

The ruling puts the Trudeau government in the awkward position of having to regulate itself while it simultaneously attempts to reform the entire approvals process.

High stakes

It also threatens to spark a constitutional crisis among Canada's bickering provinces, especially on the issue of climate change. Alberta's provincial government bitterly withdrew from the federal carbon tax plan barely a day after the court decision.

Alberta's oil sands are the fastest growing source of greenhouse gas emissions in the country, which threatens Canada's obligations under the Paris treaty. In 2016, Premier Rachel Notley implemented an unpopular carbon levy in an attempt to console opposition to the project within her own party and gain support for new export pipelines.

In publicly trashing the prime minister, she complained that "any climate change plan without Alberta isn't worth the paper it's written on".

Like the prime minister, Premier Notley has staked her political future on getting TMX built. Opposition leader Jason Kenney, himself a former cabinet minister in Stephen Harper's Conservative administration, has vowed to tear up the carbon tax and challenge the federal government on constitutional grounds. Polls suggest he will win a landslide when an election is finally called in the next year or so.

For Prime Minister Trudeau, it is the worst of all possible worlds. Not only does he find himself the owner of a multi-billion-dollar pipeline with dubious prospects for success, he's lost valuable political allies on all sides. He too will go to the polls within the next 18 months. Even in the best case scenario, the TMX case will not be resolved by then.

In that case, TMX may not only be a damning case of deja vu, but a harbinger of a new status quo. That's not a good thing for all sides.

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