UPDATE 2-Shell scraps plans for new Canadian refinery

(Adds analyst, CEO comments)

By Jeffrey Jones

CALGARY, Alberta, July 8 (Reuters) - Royal Dutch Shell Plc (RDSa.L: Quote, Profile, Research) has canceled plans to build a new multibillion-dollar refinery near Sarnia, Ontario, due to poor market conditions and surging construction costs, the oil major said on Tuesday.

Shell had been studying the feasibility of a new plant in St. Clair Township in southwestern Ontario over the past two years to process crude from its expanding Alberta oil sands operations. The refinery was to have processed 150,000 to 200,000 barrels a day.

"This decision is a very difficult one for Shell and it is only taken after careful consideration," Amrik Ahluwalia, Shell's general manager of manufacturing expansion, said in a statement on the company's website.

Curiously, neither Shell's top Canadian executive nor its media relations staff mentioned the cancellation at a briefing with reporters earlier in the day about its oil sands business.

The company had studied the environmental impact and held consultations with residents in the Sarnia area, where it already runs a 72,000 barrel a day refinery.

Some environmental groups opposed the new project.

Surging costs and a stretched labor force have hit projects throughout Canada's oil and gas industry, forcing some to be delayed in recent months.