Suncor Energy has pulled out of an $80 million project in Grand Junction that would have converted beetle-kill and wood waste into motor fuel.

Suncor last year announced a joint venture with Lignol Innovations, a subsidiary of Lignol Energy of Vancouver, to build the cellulosic ethanol plant on its property in Grand Junction.

A sputtering economy coupled with weak energy prices are to blame, according to Calgary-based Suncor, whose U.S. headquarters are in Denver.

"From Suncor's perspective, we are going to go no further with this project with Lignol," said Gord Pinard, Suncor's general manager of biofuels.

Suncor owns Colorado's two oil refineries in Commerce City.

The U.S. Department of Energy awarded the project $30 million in grants, primarily because the company promised to use as feedstock Colorado's thousands of acres of dead and dying lodgepole pine trees struck by an infestation of mountain pine beetles.

The distillery would have produced 26 million gallons of fuel a year using Lignol's proprietary technology.

"The current economic environment is a tough environment for Suncor and others," Pinard said. "We had to take a hard look at our business and decide we have to focus on our core business and run it to the best of our abilities with very limited capital resources."

So-called cellulosic ethanol is considered superior to the grain-based form because it is derived from non-food crops such as switchgrass, corn cobs and wood waste.

Ethanol and other biofuels are part of U.S. energy plans to lower reliance on foreign oil.

Pinard added, "Investment in biofuels in this environment is not the right time, so we are going to slow down our efforts in the area."

The project, in an early stage of development, had selected the site and feedstock and had begun preliminary engineering work.

But it did not use any of the Department of Energy grant money, said Lignol President and CEO Ross MacLachlan.

As per federal regulations, the project would have to use the money by 2012.

"We are talking to the DOE to extend the timeline on that," MacLachlan said. MacLachlan said despite Suncor's withdrawal, Lignol would explore different options.

Lignol says it has tested its cellulosic ethanol technology at a pilot plant in British Columbia. The technology originally was developed by General Electric and Repap Enterprises at a cost of more than $100 million.

"We are looking into changing to a different location, maybe within Colorado or a different state," he said. "Suncor has made it quite clear they want to focus on their core business right now.

"Notwithstanding that, we will always go back to Suncor to talk to them about future business opportunity."

chakrabartyg@RockyMountainNews.com or 303-954-2976