CALGARY — Imperial Oil Ltd.'s commitment to begin construction this year on its $2.6-billion Aspen oilsands project in northern Alberta comes less than a week after it received long-awaited approval from the Alberta government.
The speed of the announcement Tuesday surprised observers who have watched Calgary oilsands rivals including Canadian Natural Resources Ltd., Cenovus Energy Inc. and MEG Energy Corp. announce production cuts to avoid steep discounts currently being paid for Western Canadian Select bitumen blend oil.
Imperial's project would add 75,000 barrels per day of bitumen production to current output of about 300,000 bpd but won't start up until 2022, by which time many observers predict that new pipeline capacity will ease export bottlenecks and restore normal pricing levels.
"As we look at a three-and-a-half-year construction project execution period, we think the dust will settle in some of these areas and a project that has as many advantages as Aspen does, we're confident it will be a globally competitive investment," CEO Rich Kruger told media on a conference call following Imperial's investor day in Toronto on Wednesday morning.
He acknowledged that the company is counting on government to ensure pipelines are built in time for project startup.
Enbridge Inc.'s Line 3 replacement oil pipeline project is expected to be in service in late 2019 and one or both of TransCanada Corp.'s Keystone XL pipeline or the federal government's Trans Mountain expansion are expected to be in service a year or so later.
Meanwhile, crude-by-rail exports from Canada rose to a record 230,000 barrels per day in August.
Imperial has signalled it will increase rail use to 170,000 bpd in the first quarter of 2019, up from an average of about 80,000 bpd over the summer, from its co-owned railway terminal near its Edmonton refinery.
In situ oilsands projects which produce bitumen from wells have an advantage over open pit mines such as Imperial's nearby Kearl project that opened in 2013 and was expanded in 2015, Kruger said.
"Our view is with the large resource base, with the history of innovation and responsible development, that the highest quality oilsands can and will be competitive on a global basis, not all oilsands," he said during his investor day presentation.
"We see in situ as having fundamental advantages today over new greenfield mining developments."
Imperial decided to go ahead with construction during a slow time in the oilsands because it hopes less competition will save money on labour and component costs, said Theresa Redburn, senior vice-president of commercial and corporate development.
Aspen is being designed to add solvents along with steam into horizontal wells to melt the heavy sticky bitumen, a technology tested in a seven-year pilot project, she said.
Imperial expects to save about 25 per cent in capital costs per barrel and reduce greenhouse gas emissions and water use intensity by about the same amount compared with traditional in situ projects that use steam alone.
In a report, analysts at Tudor Pickering & Holt questioned the project's cost of about $35,000 per barrel per day versus previous company estimates that the entire 150,000-bpd project could be built for $27,000 per flowing barrel.
It said the cash-rich company can afford to ramp up spending next year and still buy back about $2 billion worth of its shares.
The approval process for the project and its 75,000-bpd second phase has been a bone of contention with Kruger, who has complained it was taking too long to win approval from the Alberta Energy Regulator since application was first made in 2013.
The AER, however, has said the review period was prolonged due to Imperial's application changes, with the latest version submitted in May 2017, and First Nation consultation adequacy requirements.
The Aspen project is expected to create about 700 jobs during peak construction and more than 200 jobs during operations.
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Companies mentioned in this article: (TSX,IMO, TSX:CVE, TSX:CNQ, TSX:MEG)