* To announce fate of upgrading plant by month end
* Shaky economics point to deferral or cancellation
* Start-up of Imperial Kearl project also within days
By Jeffrey Jones
CALGARY, Alberta, March 25 (Reuters) - Suncor Energy Inc is expected to shelve plans for a multibillion-dollar oil sands processing plant in northern Alberta when it announces the fate of the facility in the coming days, blaming a forecast for weakening returns.
The decision by Canada's largest oil company on its long-delayed and partially built Voyageur upgrading plant in Alberta is one of a pair of major developments in the oil sands due this week, the other being the targeted start-up of Imperial Oil Ltd's Kearl mining project after about four years of construction.
The two events show the changing dynamics of Canada's oil sands industry as it deals with more difficult economics due to surging production of cheaper light oil from the North Dakota Bakken and a move away from "upgrading" the oil sands bitumen into lighter, refinery-ready oil in Alberta.
Suncor said in February that the "economic outlook for the Voyageur upgrader project is challenged" and it cut any expenditures on it to a minimum pending a decision on going ahead.
Based on the current weak financial outlook facing new facilities built to pump out synthetic light crude, Suncor will postpone the 200,000 barrel a day Voyageur project indefinitely, analysts said on Monday.
"Suncor's official comments on conference calls have been something to the effect of, 'The primary motivator behind the decision will be economics,' and the economics look challenged," FirstEnergy Capital Corp analyst Michael Dunn said. "And investors don't want them to proceed with it."
Suncor Chief Executive Steve Williams has already warned the proposal, once the centerpiece of a C$20.6 billion ($20.2 billion) expansion of the company's oil sands operations, is threatened by the U.S. light crude boom. The company began building the project, located near Fort McMurray, Alberta, but stopped construction during the financial crisis of 2008-09.
Upgraders are expensive tangles of pipes and vessels that transform bitumen from the oil sands into light crude used in traditionally configured refineries. In recent years, numerous refiners in the U.S. Midwest have added equipment to their plants that do a similar job.
Another big stumbling block is the tight availability of labor in Alberta as other oil sands projects move forward, which points to rising costs, Dunn said.
Suncor has already taken a C$1.5 billion asset impairment charge on the assets.
Morningstar analyst David McColl wrote in a report that he has removed Voyageur from his financial forecasts, partly citing the impairment.
TD Securities analyst Menno Hulshof has also said the project is "now most likely to be deferred or even canceled." He pointed out that the bulk of the capital would be redirected to Suncor's steam-driven oil sands projection operations.
Suncor spokeswoman Sneh Seetal said the company still plans to announce the fate of the Voyageur project by the end of the month.
Suncor shares have been under pressure, closing on Monday down 24 Canadian cents at C$30.73 on the Toronto Stock Exchange. That represents a drop of 6 percent since the start of 2013.
Voyageur and the proposed oil sands mining projects Joslyn and Fort Hills are part of a joint venture that Suncor signed with France's Total SA.
Suncor, Total and a third partner, Teck Resources Ltd , have said they will make a decision on Fort Hills, another project that has been years in the planning, by the end of June, though the operator is advertising for several job positions in connection with the plant.
The current target for start up is 2017.
In absence of a new Alberta upgrader, Suncor could ship bitumen from Fort Hills and Joslyn to its refinery in Montreal, where a previously halted plan to build a coking unit to process the crude could be revived, McColl said.
Meanwhile, Imperial is sticking to its target for a month-end start-up for its C$12.9 billion Kearl oil sands project, which is being developed without an upgrader, spokesman Pius Rolheiser said.
The first phase of the mining project will eventually produce 110,000 barrels a day, through production will rise gradually and it will take as many as 90 days for the crude to reach markets.
The startup for Kearl comes just as the price of bitumen has been rising sharply with demand rising for asphalt production in North America.
Western Canada Select, a widely quoted heavy crude grade, last sold for $16.30 a barrel under U.S. benchmark West Texas Intermediate, compared with more than $40 a barrel under WTI in January, according to Shorcan Energy Brokers. The spread has tightened as inventories in Western Canada have dwindled.