Finance Minister Bill Morneau said purchasing the pipeline was the only way to ensure that a planned expansion could go ahead. But the federal government, citing past court decisions, including some from the Supreme Court of Canada, contends that it holds sole authority over pipelines between provinces. "We've agreed to a fair price for our shareholders and we've found a way forward for this national interest project", he told a conference call with financial analysts.
The project faces fierce opposition from the government of British Columbia (BC) and environmentalists.
Analysts have said China is eager to get access to Canada's oil, but largely gave up hope that a pipeline to the Pacific coast would be built. "For Kinder this allows them to ameliorate some of the risk that they are carrying that the market doesn't like".
Canada first offered earlier this month to indemnify the expansion project before making Tuesday's announcement.
May said Indigenous rights were not being respected in regards to the permits issued to twin the existing pipeline.
The two western provinces have been sparring over the pipeline, a situation that Mr Morneau said can not be allowed to "fester". It said it does not intend to own the project for the long term. If the government succeeds in getting the pipeline built, it plans to sell it back to the private sector.
"It is not, however, the intention of the Government of Canada to be a long-term owner of this project".
Elizabeth May, the leader of Canada's Green Party, characterized the project as much more than a pipeline. The expansion had been estimated at $7.4 billion.
Political opposition is already building.
"The Indigenous-led, people-powered movement that led Kinder Morgan to abandon ship on this project is stronger than ever and will not back down". "Any extraordinary costs will be covered together" with Alberta, Morneau added. The company has a market value of $5.8 billion. "It got a very good price for their assets".
The federal government has been in talks with the Texas-based energy infrastructure company for weeks over the future of its controversial Trans Mountain expansion. It's actually better for Kinder Morgan than it is for Canada.
Kinder Morgan set the deadline in part due to frustrations with delays caused by the British Columbia government, which is concerned about possible oil spills. The 980-kilometer (600-mile) expansion is seen by the oil industry as a crucial link to Asian markets, allowing producers to diversify away from the USA, which takes the vast majority of Canadian oil exports.