A $15bn (£9.4bn) flagship energy project in the Russian Arctic promoted by Vladimir Putin and state-owned Gazprom has been sunk by soaring costs, falling European demand and cheap shale gas in America.

The ambitious Shtokman gas production scheme in the Barent Sea, described by the Russian president as recently as May as having "global significance", was officially killed off on Wednesday.

Greenpeace celebrated the end of the controversial scheme in pristine waters, but a top British energy commentator warned last night that it could lead to higher prices for British consumers.

The decision on Shtokman was given abruptly by Gazprom. "All parties have come to the conclusion that financing is too high to be able to do it for the time being," said Vsevolod Cherepanov, head of the company's production department.

The move became more likely last week when Gazprom's Norwegian partner Statoil handed back its 24% stake and wrote off $336m (£212m) saying Shtokman could not be commercially justified.

Gazprom says it is still talking to Shell and other foreign investors about taking over the Statoil stake.

Oil and gas exploration in the far north is highly controversial given the pristine environment and Greenpeace took its first direct action against a Gazprom platform last week by boarding a floating platform in the Arctic.

Ben Ayliffe, senior polar campaigner at the green group, said the scrapping of the Shtokman sent a clear warning to investors that the Arctic was not "the land of milk and honey" the oil and gas industry claimed.

"The likes of Cairn, Shell and Gazprom have spent billions in the Arctic but come out with nothing to show for it, and we shouldn't be surprised. The technical challenges and costs of operating in such extreme conditions mean that hydrocarbon development in the far north represents a huge risk."

But Paul Stevens, an energy expert at international affairs think tank, Chatham House, said the Shtokman move should not be celebrated. "Usually decisions of this scale are taken for many reasons but I worry that expectations of a shale revolution in Europe is undermining investment decisions. It is OK if Europe is soon awash with cheap shale supplies but if it turns out to be all hype and not reality then it could be too late to invest in alternative projects that have long lead times. That would have implications for [gas] prices," he explained.

The decision to indefinitely postpone the Shtokman project represents a significant blow to the Kremlin's economic – and possibly political – strategy.

Russia has often been accused by its critics of using energy as a foreign policy tool and it no doubt believed that becoming a significant provider of gas to the US would give it political leverage.

Shtokman, named after the geologist who discovered it, is one of the world's largest gas fields but has been the subject of endless political and commercial wrangling since it was discovered almost quarter of a century ago.

With reserves estimated at 3.8 trillion cubic metres it was considered a major opportunity as gas prices began to soar worldwide in the early part of the new century.

But hopes of developing it to transport liquefied natural gas (LNG) to the fast-expanding American market have been drastically undermined by the North American shale gas "revolution" which has seen prices fall from above $10 (£6) per million British thermal units to the current level below $3.

At the same time economic turmoil in Europe plus a series of new discoveries in Norway has considerably reduced demand for Russian gas.

Gazprom insisted on Wednesday that it was still possible that Shtokman could still see the light of day pointing out that Total of France remained a stakeholder. Cherepanov said: "We are collecting new data ... We have extensive gas resources. We shouldn't take hasty decisions."