Imperial Oil to build new Canada oil sand project

(Reuters) - Imperial Oil Ltd said on Tuesday that it would go ahead with the construction of its C$2.6 billion ($2 billion) Aspen project in northern Alberta, the first new oil sand development to be greenlighted since 2013.

The Calgary, Alberta-based company, which is majority owned by Exxon Mobil, said it would start construction on the 75,000-barrel-per-day project in the fourth quarter of 2018 with first output expected in 2022.

The Aspen project will use new recovery technology to lower emissions and water use and improve project economics, the company said.

Alberta’s oil sands have been criticized for being more carbon intensive than other global crude operations.

“We do not take investment decisions lightly, particularly in these challenging times,” said Imperial Chief Executive Rich Kruger in a statement. “This is the right technology at the right time to make a competitive investment.”

Imperial said there is potential to further expand Aspen to 150,000 barrels per day, depending on project performance, and overall business and market conditions.

The discount on Western Canadian crudes has hit record levels this year, as rising output from Alberta’s oil sands has run up against chock-full pipelines, leading to higher volumes stuck in storage.

While crude by rail volumes are rising, hitting a record near 230,000 barrels per day in August, they are not yet at levels needed to clear the glut.

The situation has prompted a number of major Canadian producers to say they will not go ahead with any new projects or expansions until more pipeline capacity is in place.

But the situation is improving. Enbridge Inc said last week it expects its Line 3 project to be in service in late 2019, while TransCanada Corp said it is working to start construction on its Keystone XL pipeline next year.

The last major oil sand project to be approved in Alberta was the Suncor Energy Inc-led Fort Hills project in 2013, which is now ramping up to full output.

Reporting by Julie Gordon in Vancouver; Editing by Sandra Maler and Cynthia Osterman