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By Scott Haggett CALGARY, Alberta, Dec 13 (Reuters) - Canadian crude prices tumbled on Thursday as the differential between heavy oil and the WTI widened to the most in five years, with substantial improvement not expected for months on rising supply and a shortage of pipeline space. According to Shorcan Energy Brokers, Western Canada Select blend heavy oil for January delivery last traded at $41 per barrel less than the West Texas Intermediate crude price benchmark, the lowest since December, 2007. The price drop appears to confirm fears there will not be sufficient pipeline capacity for increasing output from the oil sands. With space on lines already restricted, a massive new source of supply is expected to hit the market next month, as Imperial Oil Ltd opens its Kearl oil sands mine, which will produce 110,000 barrels per day of pipeline-ready heavy crude oil. "We've been talking about this for a while, that the fourth quarter (of 2012) would be the pinch point where things get pretty awful," said Andrew Potter, an analyst with CIBC World Markets. "And things very well could get a little worse in January and February as Kearl hits the market and other volumes continue to grow." Along with new oil from Kearl, Suncor Energy Inc said earlier this month it expects to begin production from its 62,500 bpd Firebag 4 thermal oil sands project by year end. Though much of its output is upgraded into light synthetic crude, the company expects to sell as much as 90,000 bpd of bitumen in 2013, up from as much as 50,000 bpd for 2012. Additional heavy crude will also come from Cenovus Energy Inc's oil sands projects. It said this week that an expansion of the Christina Lake thermal oil sands project it co-owns with ConocoPhillips will add 40,000 barrels per day of new production, pushing the capacity of the project to 98,000 bpd by the second quarter of 2013. Along with those projects, expansions and new facilities operated by Canadian Natural Resources Ltd MEG Energy Corp and others could push output from thermal oil sands projects alone from just about 1 million bpd currently to 1.18 million bpd by the end of 2013, according to data from the Oil Sand Developers Group, an industry association. Production growth comes without any increase in pipeline capacity to take additional oil to market. Enbridge Inc , whose lines carry the bulk of Canada's crude exports to the United States, plans a C$6.2 billion ($6.30 billion) expansion of its system to add 400,000 bpd of new capacity, but the first of a series of expansions will not be finished until mid-2014. In addition, TransCanada Corp's 830,000 bpd Keystone XL pipeline still awaits approval from the Obama administration. Should that come early next year as expected, the line would not be in service until late 2014 at the earliest. Some price relief may come when BP Plc completes the conversion of its 405,000 bpd Whiting, Indiana, refinery to raise the amount of Canadian heavy oil to 80 percent of its capacity from 20 percent. However the company does not expect work to be complete until mid-2013. While the price difference between Western Canada Select and West Texas Intermediate crude usually widens in the winter -- it dipped to $37.50 per barrel last February and stayed below $30 until mid-March -- "I suspect there will be a seasonal impact again in 2013," said Michael Dunn, an analyst with FirstEnergy Capital. "BP Whiting will help but in terms of the (pipeline) bottlenecks it's still 2104 before you see any real relief."