(Adds comments by Kinder Morgan Canada, pipeline firm Enbridge, premiers of Alberta and British Columbia)
By David Ljunggren and Leah Schnurr
OTTAWA, May 16 (Reuters) - Canada is prepared to cover some losses Kinder Morgan Canada Ltd might suffer if a proposed oil pipeline expansion is delayed and thinks other investors are ready to step in if need be, Finance Minister Bill Morneau said on Wednesday.
The company has given Ottawa a deadline of May 31 to provide assurances it can proceed with a plan to more than double the capacity of its Trans Mountain line from Alberta to British Columbia. The government of the Pacific Coast province opposes the project on environmental grounds.
"We are willing to indemnify the Trans Mountain expansion against unnecessary delays that are politically motivated," Morneau told reporters on the same day that Kinder Morgan Canada held its annual general meeting.
The issue could become one of the biggest crises facing Prime Minister Justin Trudeau, whose Liberal government approved the expansion. Trudeau says oil producers are losing C$15 billion ($11.7 billion) a year because pipeline bottlenecks mean they cannot get crude to export markets.
Kinder Morgan Canada said it appreciated Morneau's comments but added: "While discussions are ongoing, we are not yet in alignment." The company reiterated it needs clarity about the prospects for the pipeline in British Columbia and again stressed the importance of the May 31 deadline.
Morneau said if Kinder Morgan decided to walk away, the indemnification would stay in place in case someone else took over. Whether the company would allow a rival to take charge of the expansion is unclear.
"If Kinder Morgan is not interested in building the project we think plenty of investors would be interested ... especially knowing that the federal government believes it is in the best interest of Canadians," Morneau said.
Alberta Premier Rachel Notley told reporters she was "pretty confident we will get to the right place eventually" on the pipeline while sidestepping a question about possible outside investors.
Major Canadian pipeline operator Enbridge Inc said in an emailed statement it was not in talks to buy or operate the Trans Mountain line.
Shares of Kinder Morgan Canada were up more than 3 percent at C$17.26 on Wednesday afternoon on the Toronto Stock exchange.
Morneau declined to say what aid Ottawa could provide or how much. Sources have previously said he is examining options such as loan guarantees, a bailout, or taking a stake in the C$7.4 billion project.
Morneau blamed British Columbia Premier John Horgan for delaying the project while making clear Ottawa would not cover losses caused by environmental and aboriginal opponents.
"That specific risk (Horgan's opposition) is a risk that for a private sector player is impossible to deal with. They can't negotiate between governments," said Morneau.
"We see that as something we can actually indemnify. Other business risks are other business risks - anybody going into the business of building pipelines recognizes other risks."
In the past three years, five major pipeline projects that Canada was banking on have been scrapped or delayed.
The country is on the cusp of becoming the world's fourth-largest oil producer but of late, producers have cut output due to constraints in getting oil to market.
Horgan said Morneau "is trying to use our government as an excuse, as the federal government puts taxpayer money on the line to backstop risks to private investors." ($1 = 1.2802 Canadian dollars)
Additional reporting by Rod Nickel in Winnipeg and Nicole Mordant and Julie Gordon in Vancouver Editing by Tom Brown and Matthew Lewis