Shell Canada has pulled the plug on what would have been the first new oil refinery in North America in decades.

Stunning Sarnia, the energy giant said yesterday the proposed project, worth up to $8 billion, was killed by high-cost international conditions, including a shortage of managers and engineers needed to pull off such a mega-project.

That shortage is because oil companies anxious to capitalize on record prices are scrambling to build major projects all over the world.

Sarnia Mayor Mike Bradley was reeling from the news.

"It was like getting punched in the stomach. The whole community feels jilted because we had fallen in love with the promises of this project," he said.

"It's a major economic blow to our future," said Ray Kurran, chairperson of labour relations for the Sarnia Construction Association. "We were counting on getting a lot of young people into construction jobs and bringing in apprentices."

The refinery would have provided more than 4,000 jobs for four years, Kurran said.

The Shell official who broke the news blamed the worldwide push for oil projects.

"The global demand for oil and gas projects is absolutely phenomenal," said Amrik Ahluwalia, Shell's general manager for manufacturing expansion. That has led to inflationary pressures and higher prices for construction materials and skilled trades.

Shell Canada, owned by Royal Dutch Shell, told employees to stop pre-development work on the project that'll be shelved indefinitely.

The move came after a comprehensive review, said Shell's Graham Boje, who oversees Shell's refinery expansions.

"There are a range of conditions that we assess and evaluate from availability of resources, equipment costs, long lead times on equipment, the inflation that we've seen in oil and gas projects," he said.

Besides ballooning costs, oil firms have had to contend with the spectre of potential reduced consumer demand from soaring fuel prices.

Shell's existing 72,000-barrel-a-day facility in Sarnia will continue to process oil, including some from Alberta.

Workers had hoped the project would see young people through apprenticeships.

"That's unfortunately not going to come to fruition," said Jim Bradshaw, president of the Sarnia Building Trades Council.

Shell had spent $50 million on community consultation and preliminary work on the refinery, which would have processed up to 250,000 barrels of oil a day from the Alberta tarsands and had optioned 2,400 hectares southeast of Sarnia next to Shell's existing manufacturing plant.

Estimates were the project would have employed thousands of construction workers, and 800 regular employees, injecting new life into Sarnia's Chemical Valley, hard-hit by plant closings such as the loss of Dow Chemical, dismantling its plant.

Shell had been looking at the project since late 2006.

Bradley said Shell had warned it wouldn't make a final decision until 2010.

"At a time when Ontario is losing the battle of keeping manufacturing and auto jobs, this was the only bright spot on the horizon," he said.

Shell is spending billions to expand production from its oilsands near Fort McMurray, Alta. It had also planned a $27-billion expansion to a heavy oil plant near Edmonton, which, because it's full, had created the Sarnia option.

If international conditions change, Ahluwalia said, he expects Shell will remember its strong Sarnia support.

SCUTTLED REFINERY PROPOSAL

Capacity: Up to 250,000 barrels daily from Shell's Alberta oilsands operations

Cost: $6 billion to $8 billion

Construction jobs: Would have needed all 4,000 to 5,000 workers in Sarnia, causing area skilled-trades shortages

Lasting jobs: 800 full-time