A fierce environmental campaign may force BP to scrap a $3.8 billion (£1.9 billion) expansion at one of America’s biggest refineries, the oil group said yesterday.

Bob Malone, the president of BP’s business in the United States, said that the sheer strength of opposition had created an “unacceptable level of business risk” for the energy giant.

The warning came as BP shelved plans to increase ammonia discharges from the Whiting refinery on the shores of Lake Michigan by 54 per cent, a move that it claims is vital to tripling the amount of oilsand crude that it can process at the plant.

Regulators approved the plans in June, but BP has said that it would take a further 18 months to study other technological solutions that would allow it to push ahead with the expansion.

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Mr Malone insisted that BP remained committed to the Whiting project: “It is important for the nation, it is important for the Midwest and it is important to BP.”

Mr Malone’s comments are likely to stoke the war of words over what has become a cause célèbre for both supporters and critics of the scheme in Indiana. Mitch Daniels, the Indiana Governor, said yesterday that he feared that BP could drop the planned expansion altogether, delivering a serious blow to the local economy. Other supporters have hit back against the environmental opposition, given the far higher amount of ammonia that other companies are allowed to discharge from steelworks around Chicago, which lies on the lakeshore barely 20 miles to the north.

Mr Daniels said: “For now, let’s hope [BP’s decision] quiets the hypocrisy of politicians elsewhere whose states dump vastly greater amounts of effluent in the Great Lakes and other bodies of water.”

Environmental opposition has been a big factor in stopping any new refinery being built in the United States since the last one opened in 1976. Traders are concerned that the chronic lack of new capacity will continue to underpin high petrol prices.

US crude oil prices rose $1.42 to $71.24 a barrel yesterday over fears of a delay in supply from Mexico after plant shutdowns during Hurricane Dean. Brent crude rose 89 cents to $70.75.

Senator Dick Durbin, who campaigned against BP’s plans, called the announcement a significant victory. He added: “I think it is just the beginning. We can’t stop our vigilance in protecting Lake Michigan.”

BP has suffered a difficult year in America, with the continuing fallout over the Texas City refinery blast and investigations into safety flaws and pipeline leaks at its Prudhoe Bay oil-field in Alaska.

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