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Suncor spokesperson Sneh Seetal said the company remains committed to the remaining joint venture projects with Total, including the Fort Hills and Joslyn mines.

Voyageur “clearly is economically challenged given the big growth we’ve seen in light oil particularly coming out of the U.S. Bakken play, which just does not make the economics of an upgrader look very good,” said Lanny Pendill, senior energy analyst at Edward Jones & Co. in St. Louis.

Proposals by TransCanada Corp. and Enbridge Inc. that would send Alberta crude east to refineries in Quebec provide Suncor with better options, he added. “Suncor basically has a refinery sitting there in Montreal that would love to have this type of crude,” Mr. Pendill said. “They would simply have to add a coker to the plant and that would be much more cost-effective than building this huge expensive upgrader.”

Suncor booked an after-tax impairment on the long-delayed upgrading plant of $1.49-billion in the fourth-quarter of 2012. The 200,000-barrel-per-day plant was first sidelined by the recession in 2009 before it was revived as part of the joint venture with the Canadian unit of Total.

“It’s very clear the economics on it weren’t going to justify the capital expenditures,” said Robert Mark, a research analyst at MacDougall MacDougall & MacTier in Toronto.

The decision is also a blow to a cornerstone of Alberta’s oil sands industry, which for years has relied on mining raw bitumen and processing it into lighter oil.

Nobody in the whole business in North America or the world two years ago saw the growth rate of Bakken – nobody

The shale revolution in the U.S. has changed that dynamic. Imperial Oil Ltd. planned and built its $12.9-billion Kearl oil sands mine, the newest project set to start up, without one of the hugely expensive processing plants, for example.

“Things change,” said one executive in the refining business. “Nobody in the whole business in North America or the world two years ago saw the growth rate of Bakken – nobody. And nobody saw three years ago the WTI-Brent disconnect.”