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Replacement pipe is stored near crude oil storage tanks at Kinder Morgan's Trans Mountain Pipeline terminal in Kamloops, B.C., in this file photo.

CHRIS HELGREN/REUTERS

British Columbia's government has thrown a new roadblock in front of Kinder Morgan Canada Ltd.'s planned $7.4-billion Trans Mountain pipeline expansion with proposed oil-spill regulations designed to block the shipment of increased volumes of oil sands crude through the province.

Alberta Premier Rachel Notley, who has argued Ottawa has constitutional jurisdiction over interprovincial pipelines, immediately denounced the B.C. move as "illegal and unconstitutional." Her spokeswoman, Cheryl Oates, said on Tuesday B.C.'s regulations are still in draft form, but if they proceed, Alberta "would likely take some action against them." She would not specify what that action could entail, but the Premier indicated the proposed regulations would violate internal trade agreements and federal law.

B.C. Environment Minister George Heyman announced on Tuesday the government will appoint an advisory panel to determine whether diluted bitumen can be effectively cleaned up after being spilled in water. Until that panel reports, the government will impose a regulation prohibiting any expansion – either by pipeline or rail – of oil sands diluted bitumen through the province.

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"British Columbians expect us to defend our vulnerable coastlines, our waterways, our land and our economic and environmental interests," Mr. Heyman said in an interview. "And that's why we're proposing to regulate this until we can be sure that if there is a spill it can be adequately mitigated."

While the minister said the government would be guided by the advisory panel, he noted the Royal Society of Canada released a report just two years ago that pointed to significant gaps in knowledge about how diluted bitumen reacts when spilled in water and how effective traditional response measures would be in the event of a major accident.

Environmentalists applauded the decision, saying it represents an effective death knell for the pipeline expansion, which has pitted the B.C. government – along with several of the province's municipalities and Indigenous communities – against Alberta and Ottawa.

B.C.'s New Democratic Party government, backed by the Green Party, has vowed to take whatever actions it can to block the expansion of the Trans Mountain line, which would lead to a tripling of tanker traffic in Vancouver harbour. The federal Liberal government approved the project in late 2016, and Ottawa and Alberta insist it is both safe and in the national interest.

"Having run out of tools in the toolbox, the government of B.C. is now grasping at straws," Ms. Notley told reporters in Edmonton. "The B.C. government has every right to consult on whatever it pleases with its citizens. It does not have the right to rewrite our Constitution and assume powers for itself that it does not have."

Federal Natural Resources Minister Jim Carr said the project is "in the national interest" and Ottawa is investing in marine-safety measures, spill response and research into the properties of diluted bitumen.

"We stand by our decision to approve the Trans Mountain Expansion, just as we stand by our commitment to British Columbians and all Canadians to implement world-leading measures to protect the environment and our coasts," Mr. Carr said in a statement.

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Alberta's oil industry is already seeing pressure on the price of its heavy crude owing to the shortage of pipeline capacity, as Western Canadian supply sells at a steep discount to U.S. prices. Analysts have warned the situation could persist as new oil sands projects begin operations and proposed pipeline expansions remain stalled.

In a report on Tuesday, IHS Markit said oil sands production will rise by at least 400,000 barrels a day and possibly by 700,000 to 1.4 million by 2030, depending on the pace and depth of any recovery in oil prices. Uncertainty over proposed pipelines could delay investment decisions, however, analyst Kevin Birn said by phone.

"You have these additional uncertainties that other places in the world simply don't have," he said.

In a statement, Kinder Morgan Canada noted the B.C. government had conducted an environmental assessment under the former Liberal government and issued an environmental certificate for the project. That review covered the issues the current government now wants to revisit, it said, including the possibility of oil spills, the need for more research on how diluted bitumen reacts when spilled in water and appropriate spill-response measures, the company said.

However, Mr. Heyman said the government's action on Tuesday is separate from the environmental assessment. The new rules are being enacted under legislation passed by former premier Christy Clark that gave the province powers to regulate transportation of hazardous materials, including oil.

In recommending approval of the pipeline expansion, the National Energy Board reviewed the possibility of marine spills, the nature of diluted bitumen and questions about spill response. It concluded there is a low likelihood of an accident, but imposed conditions on the company to address concerns over spills. Since then, Ottawa has announced a $1-billion plan to modernize its spill-response efforts on the West Coast.

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Still, environmentalists insist the project is now unlikely to proceed.

"The proposed regulation should be a huge wake-up call for Kinder Morgan," Jessica Clogg, executive director at West Coast Environmental Law, said in an interview.

"It signals that there are significant and potentially insurmountable regulatory hurdles that still face the Trans Mountain project. If a dilbit [diluted bitumen] spill cannot be safely and effectively cleaned up, the new B.C. regulations may prevent the company from turning the taps on, even if it's able to complete construction."

Kinder Morgan has dialled back spending on the pipeline expansion, citing difficulties obtaining needed construction permits.

Earlier this month, the company said the project is a year behind schedule. It now expects oil shipments will commence by December, 2020, at the earliest. That depends on the outcome of legal challenges and other regulatory clearances.

Kinder Morgan Canada shares fell more than 3 per cent in Tuesday's session on the Toronto Stock Exchange.

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