April 11, 2018 / 10:37 PM / 8 months ago

UPDATE 1-Canada's Trudeau to press British Columbia to accept pipeline -source

(Adds comments by federal finance minister)

By David Ljunggren and Julie Gordon

OTTAWA/VANCOUVER, April 11 (Reuters) - Canadian Prime Minister Justin Trudeau is set to pile pressure on British Columbia's provincial government to drop its resistance to a pipeline project, but will try to avoid tougher measures that might alienate voters who helped his Liberals win power, a source close to the matter said on Wednesday.

Trudeau is racing against time. Kinder Morgan Canada said it would scrap the C$7.4 billion ($5.9 billion) Trans Mountain pipeline expansion from Alberta to the west coast unless all legal and jurisdictional challenges facing the project are resolved by May 31.

The pipeline, which Canada's oil industry considers crucial, is opposed by British Columbia's left-leaning New Democratic provincial government. Environmentalists and aboriginal activists are mounting frequent protests and British Columbia police have arrested about 200 people around Trans Mountain facilities since mid-March.

Trudeau's Liberals picked up seats in the province in the last election, but the federal NDP - which opposes the pipeline - remains a force there.

This could make Trudeau's federal government cautious as it is locked in a rare standoff with a provincial counterpart. British Columbia opposes the expansion, citing fears that the risk of a spill in the Pacific province is too great.

Ottawa insists it has jurisdiction over the project and Trudeau is under huge pressure to crack down. For now, he will press the provincial government, pointing to polls showing most Canadians want the expansion to go ahead.

"We need to take actions that are focused on the government of British Columbia," said the source, who requested anonymity given the sensitivity of the situation. Trudeau will hold more talks with the province as well as Kinder Morgan Canada, the source added.

Trudeau must be careful because British Columbia voters and environmentalists gave him strong support that helped bring him to power in 2015. A crackdown could cost him support in both camps ahead of a federal election set for October 2019.

Although Ottawa says it is exploring all regulatory, legal and financial alternatives, the source conceded "there aren't an awful lot of options for the prime minister."

Federal Finance Minister Bill Morneau discussed the matter with Alberta Premier Rachel Notley in Toronto on Wednesday and told reporters that Ottawa had yet to make a final decision.

"We are working, using all the tools at our disposal, to make sure we move forward in short order to absolutely ensure this project goes forward," he said, without giving details. "We have to ensure the rule of law in this country works."

Some pipeline supporters have urged Trudeau to declare a national emergency to push through the pipeline, but the source said that idea is "preposterous."

Also off the table for now are calls from opposition members to reduce the payments Ottawa sends to British Columbia to help fund social programs.

"Are they actually suggesting we cut ... health and social transfers to hard-working British Columbians?" said the source.

Ottawa and Alberta have talked about investing in the project, though it was unclear how that would lessen British Columbia's opposition.

Some commentators suggest provincial and federal governments underwrite the project by providing insurance, essentially leaving them on the hook if the company decides to walk away.

If pipeline supporters view Trudeau as too soft, they could accuse him of not doing enough to prevent a constitutional crisis and of abandoning the energy industry in Alberta, where the Liberals also picked up extra seats in 2015.

"I don't think it's a win for him in British Columbia or Alberta under any circumstances," said pollster Nik Nanos of Nanos Research. "The problem is that is this open warfare on principle."

$1 = 1.2571 Canadian dollars Additional reporting by Anna Mehler Paperny in Toronto Editing by Denny Thomas, David Gregorio and Richard Chang

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