Suncor Energy Inc. is writing off $1.5 billion of the investment in the centerpiece of its $20.6 billion oilsands expansion, the Voyageur Upgrader, which would turn heavy bitumen into light oil, in part because of stunning production growth in U.S. oil shales.

Rising U.S. oil output is threatening what had been Suncor’s key strategy: to mine bitumen from oilsands then upgrade it to a refinery-ready synthetic crude. That crude is sold to refiners in the United States and elsewhere. Suncor now plans to write off some of the costs to date to build Voyageur. Work at the $11.6 billion plant had been delayed in 2009 with just 15% completed.

Suncor CEO Steven Williams said the project hasn’t been canceled — yet. A decision is expected by the end of March, but he acknowledged that the project, a co-venture with France’s Total SA, may not proceed.

“We’re looking at all options,” Williams told analysts during a conference call. “At one extreme, you could go ahead with the project as it is. At the other extreme, you could cancel the whole project and go ahead with nothing.”

The “bitumen bubble,” which has led to a deep discount for heavy oil and thus stunted Suncor revenues, soon may pop, allowing it be more valuable in the future.

North America stands to have “too much light, effectively sweet crude…and if anything, we have too little heavy crude,” Williams said. “Our view is that will cause a squeeze on upgrading margins and make it challenged.”

The shift would be “quite a change,” he said. The discounts made a real impact on Suncor’s 4Q2012 results, in which the average oilsands selling price fell to C$77.37 from $98.02 a year earlier.

Synthetic crude had fetched a premium to West Texas Intermediate crude, but U.S. refiners have ready access to prolific output from the Bakken and Eagle Ford shales, among others, which provide less-expensive light oil. As that U.S. oil floods the market, it could narrow the differential between heavy and light oil, according to Suncor executives. The management team now is considering using rail to transport some of the company’s bitumen products to Montreal.

“There is no easy way to go to a half or a quarter-size upgrader,” Williams told analysts. Suncor and Total also are partners in two oilsands mines: Fort Hills and Joslyn. Fort Hills likely will be built, but there are smaller chances for Joslyn, said the CEO.

“The sanction decision will be made around economics, and the good news is, of the three projects [including Voyageur and Fort Hills] this is currently the best one,” Williams said.

Canadian Finance Minister Jim Flaherty said Wednesday the widening spread between Alberta crude and other blends poses a risk to the country’s fiscal outlook.

“It’s obviously a concern,” he told reporters during a press conference in Ottawa. “The reality is that Alberta crude is being sold at a very substantial discount. And it affects our budgeting” because it affects the level of tax revenues collected.

Typically, he said, there’s been a discount of $10-20/bbl for the price of Western Canadian Select oil versus the West Texas Intermediate benchmark. However, the discount has widened to almost $40 and could expand even more because of pipeline capacity constraints in Canada and the increasing amount of U.S. crude supplies.

Alberta’s government has warned that the lower prices for crude may reduce provincial coffers in the current fiscal year by about $6.02 billion, or about what the province spends every year for education.