TORONTO/WINNIPEG, Manitoba (Reuters) - Canada's Finance Minister Bill Morneau on Thursday highlighted the country's pension funds as possible investors in Kinder Morgan Inc's KMI.N pipeline expansion, but industry sources were skeptical about attracting new investors.

Canadian Minister of Finance Bill Morneau speaks during an interview with Reuters in Toronto, Ontario, Canada, May 17, 2018. REUTERS/Carlo Allegri

Morneau on Wednesday raised the prospect of foreign funding, saying "plenty of investors would be interested" if Kinder Morgan Canada KML.TO walked away from the project.

“We have very sophisticated Canadian pension funds and institutional investors that have a high level of understanding of how you embark on infrastructure projects and a great deal of experience around the world in bringing those projects to completion,” Morneau told Reuters in an interview.

Morneau declined to say whether the government was in active discussions with potential investors.

Kinder Morgan has set a May 31 deadline for Ottawa to provide assurances it can proceed with the expansion that will more than double the capacity of its Trans Mountain line from Alberta to British Columbia.

British Columbia, through which most of the pipeline runs, opposes it on environmental grounds.

The issue could spark one of the biggest crises for Prime Minister Justin Trudeau, whose Liberal government approved the expansion. Trudeau says oil producers are losing C$15 billion ($11.7 billion) a year because pipeline bottlenecks mean they cannot get crude to export markets.

Morneau said the government is intervening because of the “exceptional” circumstances around the project.

In a separate interview, Mark Machin, chief executive of Canada Pension Plan Investment Board, said the pension fund manager, the country’s biggest, could consider the project.

“If it’s an opportunity that has decent returns then we’ll look at it,” Machin said, adding the government’s pledge to protect investors against political risk was helpful.

A Canadian energy industry source who was not authorized to speak publicly about the matter said Morneau’s comments about potential new investors were puzzling.

U.S. companies are likely more focused on easing pipeline bottlenecks south of the border and are not interested in taking on the Trans Mountain project, which faces fierce opposition, the source said. Hundreds of people have been arrested in Burnaby, the British Columbia port where the pipeline ends.

“It doesn’t matter who the owner is; even if it’s the federal government, you’re not getting the grandma off the picket line in Burnaby,” said the source.

A Calgary, Alberta-based oil trader said Morneau’s assurances struck the wrong chord.

“I don’t want the government involved in owning or funding a pipeline. Two governments from now, who knows what they would do with it? Just the wrong message to the industry, really.”

Kinder Morgan Canada already operates the Trans Mountain pipeline and it is unclear whether it would welcome a rival taking over the expansion.

An option might be to let an overseas company to step in, but foreign investment in Canada’s energy sector could be a sensitive issue.

Andrew Botterill, national oil and gas leader at Deloitte, which advises energy companies, said investors think Canadian pipelines and other resource projects generally face high political risk.

“That’s the type of risk that makes it very difficult for companies to come in and invest in Canada, when they’re looking globally for stability,” he said.

A source with deep ties to the natural resources sector who was not authorized to speak publicly about the matter suggested Canada’s recently created Infrastructure Bank might be the best way to invest. The agency is open for business but has yet to facilitate financing for any project.

Morneau and the Infrastructure Bank declined to comment on whether it could be involved.