The federal Canadian government is preparing a financial aid package for Alberta in case it decides against a controversial large-scale oil sands project, Reuters reports, citing sources close to?

The federal Canadian government is preparing a financial aid package for Alberta in case it decides against a controversial large-scale oil sands project, Reuters reports, citing sources close to the cabinet.

?Rejecting Teck without providing Alberta something in return would be political suicide,??one of the sources said. This means the government must be prepared to compensate the oil province to dull the pain.

Teck Resources' Frontier oil sands project, valued at some $15.7 billion (C$20.6 billion) will produce some 260,000 bpd of crude oil at peak production and will have a productive life of 40 years.

It is as controversial as any new oil sands project would be under a Liberal government that has pledged to do more about climate change, but for Alberta it is essential not just as a job creator but as an indicator of this government's readiness to support?or defeat?Alberta's oil industry as a whole.

The Liberals would be careful to do the latter, the Reuters sources said, after they lost all seats in Alberta at last year's election precisely because of their negative attitude to new energy projects that have depressed the oil industry in the province.

Yet there is little wiggle room. As one analyst put it right after the elections, ?We have got a Liberal minority and the balance of power shifts to the NDP and the Greens, who are completely opposed to any progressive energy policies.?

This means it is quite likely that Ottawa would reject the Frontier project, angering Alberta. The implications of such a development are grim for the oil province but none too rosy for the Liberals either; they would have to find a way to make up for their decision on Frontier in a way that would satisfy Alberta.

It's worth noting, however, that even if the federal government approves the Frontier project, Teck might decide to shelve it: when it proposed the development, oil was trading much higher than it is trading now, casting a shadow over the economic viability of the project.

By Irina Slav for Oilprice.com

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