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Protesters take part in a mass sit-in in front of the British Columbia legislature in Victoria, B.C. Monday, Oct. 22, 2012. to protest the proposed Northern Gateway pipeline. Native leaders say the report could perhaps set the stage for groundbreaking talks between First Nations and government over several multibillion-dollar energy developments that have been proposed in B.C.JONATHAN HAYWARD/The Canadian Press

Pipeline politics are never far below the surface for the Harper government, and this week's report from the panel reviewing the highly controversial Northern Gateway project will again illustrate the challenges for the Conservative government in meeting its goal of providing the Alberta-based industry with an outlet to Asia through British Columbia.

The National Energy Board panel is expected to release its report at the end of the week on whether to allow Enbridge Inc. to proceed with the pipeline which would transport 500,000 barrels per day of diluted bitumen from the oil sands to an export terminal at Kitimat, where it will be loaded on to to crude tankers for export.

At the same time, Kinder Morgan Inc. filed an application on Monday to triple the capacity of its existing TransMountain pipeline which ends at the Vancouver waterfront. Opponents of that $5.4-billion project are gearing up for a fight, including Vancouver Mayor Gregor Robertson who has said the city will intervene in the regulatory review to voice its concerns.

Clearly, Prime Minister Stephen Harper faces a stiff fight over what he has described as a urgent priority to diversify markets for Canadian oil producers. He has a lot to lose: the Conservatives won 21 of the province's 36 seats in the 2011 election, and pushing pipeline projects over local opposition will make it challenging to reclaim many of those ridings.

In legislation passed last year, the Conservative government gave itself the authority to over-rule the panel's decision. The panel is unlikely to issue a flat out "no." But if it does, Mr. Harper will have to decide whether to make use of new power to over-rule it, despite frequent promises from Natural Resources Joe Oliver that the federal government will ensure any pipeline is safe for the environment and for Canadians.

More likely is a panel decision that approves the pipeline but with a lengthy and challenging list of conditions that both government and the company must fulfill. It will then be up to cabinet to decide which of those conditions it will accept and enforce or how to determine whether they have been met. Under its own rules, the government has until July to issue a final decision on the project.

If it intends to proceed, Ottawa will have to overcome the reservations of the provincial Liberal government, and the outright opposition of many British Columbians on environmental grounds and of aboriginal communities whose traditional territories lay in the path of the pipeline and tankers.

Premier Christy Clark has laid down five conditions that must be met before her government would endorse the Northern Gateway route, but her criteria are vague and the federal government could likely make a case that it will satisfy all but one: ensuring B.C. shares in the financial benefits. That one, Ms. Clark will have to solve herself.

Regardless of Ms. Clark's positioning, many environmentally-minded British Columbians continue to oppose Northern Gateway, which would result in crude-laden super tankers plying some of the most dangerous waters on the West Coast. Ottawa has sought to address their concerns by adding new pipeline and tanker safety requirements, but a federally appointed panel reported recently that much work needs to be done before the government can claim its has "world-class" safety standards. Canadians can expect a flurry of announcements on that between now and July.

Mr. Harper and his cabinet members know they will never quiet clamour from the most ardent environmentalists – hence the long-running attack characterizing some opposition as foreign-funded radicals who oppose all development. But they hope to sway the views of average British Columbians – and Canadians – who would support development if they thought it could be done responsibly.

The biggest hurdle – both for Northern Gateway and Kinder Morgan's TransMountain project – remains the First Nations communities who worry about pipeline spills and tanker accidents. Vancouver lawyer Doug Eyford laid out an ambitious prescription that he said would be required to win aboriginal support for west coast energy projects.

Key to Mr. Eyford's report is the recommendation that Ottawa needs to work harder to build trust among aboriginal communities. But that will be hard to accomplish in six months – the timeline Ottawa has imposed upon itself to make a decision on Northern Gateway. First Nations threaten to take the government to court should it proceed over their objections.

The government's best option may be to punt on Northern Gateway, and redouble its efforts to create what Quebeckers in another context call "winning conditions" to achieve its pipeline aims through Kinder Morgan.

Shawn McCarthy covers energy from Ottawa.