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(Reuters) - Royal Dutch Shell Plc and Iogen Corp have scrapped plans for a commercial-scale biofuel plant in Manitoba, spelling the loss of 150 jobs and raising questions about widespread and near-term use of fuel made from agricultural waste in Canada.
The Iogen Energy joint venture had been studying building a plant to make ethanol from straw and other plant waste, rather than from food crops such as corn and sugar. One location discussed was Portage la Prairie, west of Winnipeg, Manitoba.
The proposal had been in planning stages and a spokesman for Shell could not provide an estimated cost.
Shell first invested in Iogen 10 years ago and the partners have operated a demonstration plant in the Ottawa area since 2004.
"We do continue to have a relationship with them and continue to retain the licensing rights to the technology developed," Shell spokesman David Williams said on Monday.
"It's like a lot of things with R&D, you build demonstration plants, you get that far, and you learn from them, and this has been an important source of knowledge."
Iogen will still employ 110 people at its Ottawa headquarters and plans to expand new technology for production of the biofuels made from cellulose, the partners said.
Cellulosic ethanol is made from the non-food portion of crops. Ethanol production from food grains, especially corn, has generated debate about the ethics of diverting food for use in fuel and has been a key reason why U.S. corn stocks are projected to fall to a 16-year low this summer.
Chicago corn futures prices hit a record peak last summer and remain historically high.
The Canadian and provincial governments spend about C$250 million ($253 million) annually, according to the agriculture think-tank George Morris Centre, to subsidize production by companies such as Husky Energy Inc and Suncor Energy Inc. One aim is to cut greenhouse gas emissions from conventional fuel.
Ottawa wants gasoline across the country to contain an average of 5 percent ethanol, creating demand for 2 billion liters, but current production falls short of that level.
The decision by Shell and Iogen doesn't threaten the future Canadian biofuels production, said Scott Thurlow, president of the Canadian Renewable Fuels Association.
"It's just like any other fuel, it takes time to build up the necessary capital to implement," he said. "While I am personally disappointed, I don't see this decision as a threat to the industry in general."
Thurlow said there are demonstration projects in Canada for cellulosic ethanol, but no commercial production to his knowledge.
For its part, Shell is a partner with other ethanol producers, including Brazil's Cosan and a U.S. company called Virent, which has developed technology to convert plant sugars into hydrocarbon molecules.
Reporting by Jeffrey Jones in Calgary and Rod Nickel in Winnipeg; Editing by Peter Galloway