UPDATE 2-Canada approves expansion of crude oil pipeline, says legal challenges likely

Canada as expected on Tuesday approved a hotly contested proposal to expand the crude oil pipeline it bought last year, providing hope for a depressed energy industry but angering environmental groups. Construction on the expansion of the Trans Mountain pipeline is planned to start this year, Prime Minister Justin Trudeau told a news conference. A senior government official, speaking on condition of anonymity, said earlier that Ottawa expected legal challenges to the approval.

The project would triple Trans Mountain's capacity to carry 890,000 barrels per day from Alberta's oil sands to British Columbia's Pacific Coast, alleviate congestion on existing pipelines and diversify exports away from the United States. Trudeau, who faces a close election scheduled for October, has been under pressure from both western Canadian politicians who accuse him of doing too little for the struggling oil industry, and from environmental groups that fear spills.

"This isn't an either/or proposition. It is in Canada's national interest to protect our environment and invest in tomorrow, while making sure people can feed their families today," he said, adding he knew some people would be disappointed. The Liberal government previously approved the expansion in 2016 but that decision was overturned last year after a court ruled the government had not adequately consulted indigenous groups.

The approval was widely expected as the government spent C$4.5 billion ($3.4 billion) to buy the 66-year-old pipeline from Kinder Morgan Canada Ltd last year to ensure that the expansion proceeded. Western Canada's oil production has expanded faster than pipeline capacity, causing a glut of crude to build up and pressure on Canadian prices. The government's latest approval can be appealed. Trans Mountain also requires various permits and route approvals in British Columbia, where that province's left-leaning New Democratic Party government opposes the project.

The B.C. government also plans to appeal a recent British Columbia Appeal Court ruling that the provincial government cannot restrict the flow of oil on pipelines that cross provincial boundaries. Mike Hurley, mayor of Burnaby, where the pipeline terminates in a tank farm near the Westridge Marine Terminal on Burrard Inlet, said his city was "absolutely against" the pipeline expansion.

"It brings too much extra risk into our community and we don't believe the risk is worth the rewards. There's risk of fire, explosion, chemical releases, a natural disaster for our First Nations people who use the inlet so much, and for business. We have been kept in the dark." Construction is expected to take 2-1/2 years, investment bank Tudor Pickering Holt & Co said. Assuming work on the expansion resumes this year, the expanded pipeline could be in service in early 2022.

Eighty percent of the expanded pipeline's total capacity has been contracted to companies including Suncor Energy Inc , Canadian Natural Resources Ltd, Husky Energy Inc, Exxon-owned Imperial Oil Ltd, BP PLC and Cenovus Energy Inc, according to a National Energy Board filing.