Rising capital costs for the project have escalated to a level that would limit any returns and the company has decided to take a one-time, non-cash charge, which is expected to be around $US40 million, in the third quarter to write-off the costs incurred in developing the project.

In June Methanex slashed the size of the project in response to the climbing Australian dollar and its impact on the project economics.

The move led to a desperate scramble by the contracted gas supplier, the NWS venture and Woodside, which was forced to revise its original gas supply deal for 200 terajoules of gas a day for 25 years with an agreement to supply 100 terajoules a day for 20 years.

The original supply deal also would have made the project one of the state's biggest gas users.

However, Methanex's New Zealand plants located at Taranaki will breath a sigh of relief as it was widely expected that at least one if not all three of the plants would have been closed upon the development of the Burrup project.

"We have rigorously studied several combinations of sites, technologies and scale in Australia but we have been unable to develop a methanol project that delivers acceptable returns for our shareholders. We cannot proceed with large capital projects that only deliver marginal returns," said Pierre Choquette, Methanex's chairman and CEO.

Bruce Aitken, Methanex's president and COO added, "We remain committed to maintaining our strong presence in the expanding Asian market and we are continuing to develop alternatives to support our strategic customer base in Asia.

"Our global supply chain allows us the flexibility to effectively service key Asian markets from our plants in New Zealand, Chile and North America."