* Kinder Morgan (NYSE:KMI) halting most work on Trans Mountain pipeline
* Shares in Canadian unit pare losses but still end sharply lower (Adds comments from Prime Minister Justin Trudeau's news conference, link to EXPLAINER, updates stock)
By Allison Lampert and John Benny
MONTREAL/BENGALURU, April 9 (Reuters) - The Canadian government on Monday said it was considering all its options on the Trans Mountain pipeline expansion, including a possible investment of public funds to ensure construction goes ahead, after Kinder Morgan Canada KML.TO halted most work on the project and set a May 31 deadline to scrap the plan.
Canada's Natural Resources Minister Jim Carr, when asked whether the federal government would invest in the C$7.4 billion ($5.8 billion) project, told the Canadian Broadcasting Corporation: "We are looking at all options -- that's on the table. We're not ruling anything out. We are doing an assessment of what might be necessary, working with the government of Alberta."
Carr's comments follow Alberta Premier Rachel Notley's pledge on Sunday that the oil-rich province was prepared to invest in the pipeline to ensure the project moves ahead. Morgan Canada said on Sunday that it would scrap plans to nearly triple the capacity of its existing Trans Mountain pipeline, which extends from Alberta to British Columbia's coast, unless various legal and jurisdictional challenges could be resolved by May 31. project was approved by the federal government in 2016, but that approval is being challenged in court by First Nation groups and local municipalities, and British Columbia is eyeing whether it has jurisdiction to block increased oil shipments through its territory. go ahead, the company needs more certainty, said Kinder Morgan's Chief Executive Steve Kean in a conference call on Monday, which could mean "some kind of preemptive action" to make clear Canada's jurisdiction over the project.
If the project is ultimately canceled, then the company would evaluate any write-off in the second quarter, he added.
Shares of Kinder Morgan Canada, spun off by its U.S. parent to raise funds for the project a year ago, fell as much as 19 percent to their lowest since its listing. The shares pared some losses but still ended down 12.58 percent at C$16.12.
The 1,147-kilometer (712 mile) pipeline is considered crucial to Canadian oil producers, who are desperate to access new overseas markets. Canada sends the majority of its energy products to the United States.
Prime Minister Justin Trudeau, when asked by reporters on Monday in Montreal, reiterated that the pipeline would be built.
For a story on the Canada's options: Monday, Notley said she was still very hopeful a solution could be found, citing the risks of an imminent constitutional crisis. PRICES
Craig Wright, chief economist at Royal Bank of Canada, said that not increasing pipeline capacity had the potential to knock C$10 billion ($7.9 billion) off wealth generation in Canada annually by adding to a sustained discount for the country's crude oil.
Canadian crude trades at a discount to the U.S. oil benchmark CLc1 , with tight pipeline and rail capacity sending the Western Canadian Select differential sharply wider than normal earlier this year. It was trading at $16.25 on Monday, according to Shorcan Energy brokers.
The pipeline dispute spurred business lobby groups to ask the federal government to clear up the uncertainty.
"The Trans Mountain Expansion is in the national interest and if it fails to move forward, it will send a strong negative signal to investors at home and abroad that we, as a country, are not open for business," said Perrin Beatty, President and CEO of the Canadian Chamber of Commerce. ($1 = 1.2709 Canadian dollars)