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Photo by Ian Kucerak / Postmedia

MacGregor is despondent that the start coincides with a precipitous drop in Canadian heavy oil prices compared to refined products that has hurt Alberta – a development which strengthens MacGregor’s case for more refining capacity in the province. “I feel sad because it’s bad for Alberta,” he said, of the price drop.

Despite the near-doubling in costs of the project from an estimate of $5.7 billion in 2013 to $9.5 billion, oil producers who are sending their bitumen to the Redwater refinery are earning an extra $23 margin on every barrel after paying fees to the refinery, MacGregor said.

The refinery currently produces 20,000 barrels of diesel per day, and the CEO expects it to reach full capacity of 80,000 bpd by the summer.

Photo by Ian Kucerak / Postmedia

The project may be a welcome relief for heavy oil producers that have seen WCS differential against WTI jump to $25 per barrel in December and are bracing for it to persist for some time.

In a recent report, RBC Capital Markets analyst Greg Pardy noted that “Canada’s oil exports are set to materially exceed export pipeline capacity in the first quarter of 2018,” leading him to raise his differential forecast between WCS and WTI from US$12 per barrel to US$15.50 per barrel next year, and from US$14 per barrel to US$17.50 per barrel in 2019.

It's cheaper to build in China but I can't get bitumen to China. It might be cheaper to build on Mars, too Ian MacGregor

Other factors are also conspiring against the WCS. The International Maritime Organization, which regulates the global shipping industry, has announced the industry would switch to fuel blends that emit less sulphur dioxide beginning in 2020, a move which would “will likely result in wider WCS spread vis-à-vis sweet benchmarks in 2020-2022,” Pardy said.