By David Ljunggren and Steve Scherer
OTTAWA (Reuters) - Canada is preparing an aid package for Alberta, heart of the country's struggling oil industry, that would help dull the pain if it blocks an oil sands project that could create thousands of jobs, sources familiar with the matter said this week.
Ottawa must decide by end-February if Teck Resources Ltd can build the C$20.6 billion ($15.7 billion) Frontier mine in northern Alberta despite climate and wildlife concerns.
The decision is a major test of Prime Minister Justin Trudeau's 2019 election pledge to put Canada on the path to reach net zero greenhouse gas emissions by 2050. Complicating the decision, unhappiness with the government's energy and pipeline policy cost Trudeau's Liberals all their Alberta seats in October 2019 elections.
"There will be a big fight inside cabinet over this," said one source directly familiar the matter who requested anonymity given the sensitivity of the situation.
"Rejecting Teck without providing Alberta something in return would be political suicide," the source added.
In Alberta, the project is considered essential for employment and growth. Teck says it would eventually create 7,000 jobs, although the company's chief executive recently questioned whether it will ever be built.
About 20 oil sands projects currently sit dormant despite receiving approval.
Options being considered in the aid package, to be featured in the upcoming budget, include a cash injection to help clean up thousands of inactive oil and gas wells abandoned by bankrupt companies, five sources with knowledge of the situation said.
The move would help create jobs. But it would also require Alberta's government "to close the loopholes" that have allowed companies to shed their responsibilities for the clean-up, one of the sources said.
Also under discussion is expanding the federal fiscal stabilization program that helps provinces deal with economic downturns, a measure Alberta's Premier Jason Kenney has demanded. Local infrastructure projects could also be in the mix, the source said.
"Teck is not a political gift - it deserves to be approved on its merits," Kenney spokeswoman Christine Myatt said in a statement to Reuters.
"We do not view a decision on Frontier as something to be traded away."
All five sources said while Trudeau was particularly concerned about national unity, given strains with Alberta, he has not made his position known.
Both Deputy Prime Minister Chrystia Freeland, who has the job of repairing relations with the province, and Natural Resources Minister Seamus O'Regan are widely believed to be tilting towards approving the project, while many other cabinet members remain undecided.
Freeland's office did not respond to requests for comment. A spokesman for O'Regan declined to say how the minister felt about the project.
"This is a cabinet decision that will be taken in due course," Trudeau spokesman Cameron Ahmad said when asked about the internal debate.