In October 2013, the company first announced that it would build the 80,000 barrel per day operation near Peace River.
Shell announced its plans in March to re-phase the project in a bid to take advantage of the market downturn so as to optimise design as well as retender certain contracts.
Prior to announcing its decision, the company carried out review of potential design options, updated costs, and its capital priorities for the project.
According to Shell, its latest decision reflects existing uncertainties, including the non-availability of infrastructure to transport Canadian crude oil to commodity markets worldwide.
Shell CEO Ben van Beurden said: "We are making changes to Shell's portfolio mix by reviewing our longer-term upstream options world-wide, and managing affordability and exposure in the current world of lower oil prices.
"This is forcing tough choices at Shell."
The company said it will keep the Carmon Creek leases, while preserving some equipment.
Meanwhile, Shell will continue to study the options for the asset.
As a result of this decision, the company expects to take net impairment, contract provision, and redundancy and restructuring charges of $2bn in the third quarter 2015 results.
