Shell has decided not to progress with its investment in the Cambo oil development.
The energy company, which has a 30% stake in the west of Shetland project, said the investment case was not strong enough.
Siccar Point Energy - which has 70% ownership of the field - is now in discussions with contractors, supply chain and wider stakeholders to review options, describing the development as "important".
A Shell spokesperson said: “Before taking investment decisions on any project we conduct detailed assessments to ensure the best returns for the business and our shareholders. After comprehensive screening of the proposed Cambo development, we have concluded the economic case for investment in this project is not strong enough at this time, as well as having the potential for delays.
“However, continued investment in oil and gas in the UK remains critical to the country’s energy security. As Shell works to help accelerate the transition to low-carbon energy, we remain committed to supplying UK customers with the fuels they still rely on, including oil and gas.
“We believe the North Sea – and Shell in it – have a critical role to play in the UK’s energy mix, supporting the jobs and skills to enable a smooth transition to Britain’s low-carbon future.”
Jonathan Roger, chief executive officer of Siccar Point Energy said: “Cambo remains critical to the UK’s energy security and economy. Whilst we are disappointed at Shell’s change of position, we remain confident about the qualities of a project that will not only create over 1,000 direct jobs as well as thousands more in the supply chain, but also help ease the UK’s transition to a low carbon future through responsibly produced domestic oil instead of becoming even more dependent on imports, with a relatively higher carbon intensity.
“We will continue to engage with the UK Government and wider stakeholders on the future development of Cambo.”
Russell Borthwick, chief executive at Aberdeen & Grampian Chamber of Commerce, said: “This is a commercial decision between two business partners. However, there is a clear desire from the development’s majority stakeholder to see the project delivered.
“People continue to need, and consume, oil and gas – and products derived from them – to travel, to heat and power their homes and to buy many everyday goods. The global energy system is changing; however, the population cannot change the way it uses energy overnight.
“Oil and gas will continue to be required throughout the transition to net-zero carbon, and new fields will be required to meet our domestic supply needs in the meantime. The alternative is importing oil and gas from other parts of the world, which would increase the carbon footprint of our energy use. This would be madness.
“We need our government, industry, and politicians of all parties to make this get our transition steps in the right order to protect jobs, provide retraining opportunities and create new ones.”