By Rod Nickel and David Ljunggren
WINNIPEG, Manitoba/OTTAWA (Reuters) - Canadian Prime Minister Justin Trudeau faced pressure on Wednesday from an important political ally and the business community to settle an oil pipeline dispute that has sparked fears of a trade war between two neighboring provinces.
Alberta and British Columbia (B.C.) are scrapping over Kinder Morgan (NYSE:KMI) Canada's planned C$7.4 billion ($5.9 billion) Trans Mountain pipeline expansion, which was approved by Ottawa in 2016.
While Alberta oil companies need the line to reach higher-paying offshore markets, it is opposed by many in B.C. who worry about spills on their land and coastline.
The escalating tension has forced Trudeau to take a firm approach to getting the pipeline built and helping Alberta recover from a deep dive in energy prices, without losing crucial British Columbia political support.
B.C., ruled by a left-leaning New Democrat-Green alliance, said last week it would temporarily block increased oil shipments through the province while it examines how easily Alberta oil can be cleaned up. Alberta retaliated on Tuesday by halting imports of B.C. wine.
The trade war tit-for-tat has been mocked as the "Pinot pipe" war, and inter-provincial "sour grapes," and has stirred speculation about what goods might be targeted next.
"Alberta won't back down, but we need Trudeau to step up," said Alberta Premier Rachel Notley, an important Trudeau ally, on Twitter.
Notley has cooperated with Trudeau on implementing a carbon-pricing plan to reduce emissions, and Trudeau in turn backed the Trans Mountain project.
Notley's call was echoed by the Canadian Chamber of Commerce. "Boycotts ... will not resolve an issue that is ultimately our federal government's responsibility," the chamber said.
B.C. Premier John Horgan said on Wednesday that he had no intention of escalating the trade battle with Alberta: "I don't believe it's in anyone's interests to have dueling premiers."
Officials from his government will meet with their federal counterparts on Thursday to "clarify our intentions and clarify what we believe is our jurisdiction" on the pipeline issue, he told reporters.
Trudeau said his government would stand up for the "national interest," but disclosed little about possible next steps. "We're continuing to discuss and engage with the B.C. government, with the Alberta government," he told reporters in Ottawa on Wednesday.
A Canadian government source said Trudeau spoke with both premiers last week and made it clear he wants the pipeline built. Pressed as to what the prime minister might do next, the source cited Trudeau as saying last week that the dispute was still in the early stages.
Whatever happens, the dispute offers Trudeau big risk and reward, said Tom Bateman, associate political science professor at New Brunswick's St. Thomas University.
Voters in environmentally conscious B.C. provided the government in the last election with its biggest beachhead west of Ontario, which Trudeau needs to maintain in the 2019 vote.
But forging a resolution would also help Trudeau shed his "fluffy and superficial" reputation, Bateman said. "He's in a box and he's got to figure a way to get out of it."
MUDDY WATERS
Kinder Morgan is carrying out little construction work as it seeks the final permits and path approvals it needs from municipal governments and has delayed the project's start-up date to December 2020.
Under a trade agreement among western provinces, B.C. has the right to block oil if it has environmental concerns, said Ross Hickey, assistant economics professor at University of British Columbia.
If British Columbia decides the pipeline is too risky, after completing its spills study, Trudeau could ask Canada's Supreme Court to settle the question of whether federal or provincial authority prevails, said Peter Russell, professor emeritus of political science at University of Toronto.
"It's kind of the Canadian way," Russell said. "We have strong and popular governments at the federal and provincial level, and they fight each other over popularity, jurisdiction and power more than any other country in the world."
A spokeswoman for Kinder Morgan did not immediately respond to a request for comment.
Ottawa is due to unveil draft legislation on Thursday to improve the way pipelines and mines are assessed.