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OTTAWA/CALGARY (Reuters) - Canada's government may curb the national energy regulator's power, including stripping it of sole oversight for new projects, as part of reforms to a body under pressure over a botched pipeline hearing, according to two sources familiar with the matter.
Ottawa, responding to what it says is general public displeasure with how environmental assessments of energy projects are carried out, is eyeing major reforms and tentatively plans to push them through in 2018, said one of the sources.
Such changes will irritate industry players who insist the National Energy Board (NEB) is working well. Critics say the NEB is too close to the energy industry.
The Liberal government has named an expert panel to review potential changes to the environmental assessment system and will wait for it to report back early next year before deciding which approach to take. The panel can recommend the NEB's responsibilities be amended, said a spokesman for the panel.
Environmentalists and aboriginal activists are stepping up opposition to energy projects, threatening years of delays at a time when Canada needs to get its landlocked crude to its east and west coasts to avoid pipeline bottlenecks that leave Canadian oil trading at a discount.
One option under consideration is stripping the NEB of its authority as the only body that can assess major federally-regulated energy projects such as pipelines, the sources said.
A second, separate panel will look specifically at how the NEB is governed.
The NEB upset Natural Resources Minister Jim Carr and other cabinet members with the way it handled a hearing into TransCanada Corp's proposed Energy East pipeline in the province of Quebec, said four sources.
An NEB panel examining the project resigned last month after it emerged members had privately met a consultant for the company before the proceedings formally started.
The misstep added to pressure on the NEB. Carr said in January that Canadians did not trust the current assessment system and also promised to reform the regulator.
"All options are on the table," Carr's spokesman Alexandre Deslongchamps said when asked whether the NEB's role in doing assessments might be curbed. He did not respond directly when asked whether Carr was unhappy with the regulator.
The NEB referred questions to Carr's office.
The regulator was given sole responsibility for assessing federally-regulated energy pipelines in 2012 as part of reforms introduced by the then Conservative government, which described the former process as overly complex and time-consuming.
The Liberals could return to the previous system, where the NEB shared responsibility with the independent Canadian Environmental Assessment Agency.
Industry officials say the 2012 reforms are working and express little enthusiasm for another set of major changes.
"The NEB did a wonderful job of fulfilling their mandate under the legislation that they have, which wasn't always easy," Ian Anderson, president of Kinder Morgan Inc.'s Canadian operations.
In May, the NEB gave permission for Kinder Morgan to twin its existing Trans Mountain pipeline from the Alberta oil sands to the Pacific coast. The project still awaits federal approval.
The Energy East hearings are now stalled until a new panel can be appointed, which will add more delays to a process that is already set to take years.
Critics say giving the NEB more powers was a mistake.
"The NEB is not the body that should be doing environmental assessments," said Jessica Clogg, executive director of the West Coast Environmental Law non-governmental group.
She cited the 2015 appointment of a Kinder Morgan consultant to the NEB and the fact the board required people wishing to comment on the Trans Mountain project to fill in an 11-page application form.
"It's been a fiasco and speaks to some significant change that is needed," Clogg said.
Dirk Lever, an energy infrastructure analyst at AltaCorp Capital in Calgary, said despite the Energy East panel debacle, the NEB was generally well respected by the Canadian oil and gas industry and acted as an exacting regulator.
"They are no pushover but the environmentalists make it sound like that," he said.
Reporting by David Ljunggren and Nia Williams; Editing by Alan Crosby