WINNIPEG, Manitoba, May 31 (Reuters) - Norway's Equinor ASA (EQNR.OL) said on Wednesday that it will postpone its Bay du Nord Canadian offshore oil project for up to three years, due to rising costs.

The decision sets back one of Canada's biggest oil projects in years, and one which has the rare support of Prime Minister Justin Trudeau's government. Ottawa backed Bay du Nord saying that it would produce relatively low emissions.

"Bay du Nord is an important project for Equinor. Within the context of the changing market with increased cost, we will now look at the project again to see if we can do further optimizations to our concept and strategies,” said Trond Bokn, Equinor's senior vice president, Project Development, in a statement.

Equinor had planned to produce first oil by the late 2020s, and its 500 million barrels of recoverable reserves could last 20 years.

Newfoundland & Labrador Premier Andrew Furey said he was disappointed, but still hopeful the project will proceed.

"The company has assured me that this is largely market forces at play and it's not a cancellation."

BP PLC (BP.L) is a partner in the project, whose cost has previously been pegged at C$16 billion ($11.97 billion).

Equinor did not specify the rising costs, but attributed them to "volatile market conditions."

Equinor has sanctioned in recent years other costly projects in Norway and Brazil, said Mark Oberstoetter, head of Americas research at consultancy Wood Mackenzie.

"The (Bay du Nord) economics are positive but if you play around with costs and risk more, it's not going to be the best opportunity in their portfolio," he said.

Sierra Club Canada, an environmental group that has raised concerns about Bay du Nord's impact on the air, water and wildlife, said it hoped Equinor would cancel the project.

Bay du Nord would be so far from shore - 500 kilometers (311 miles) - that it falls in international waters.

($1 = 1.3372 Canadian dollars)

Reporting by Rod Nickel in Winnipeg, Manitoba and Nia Williams in British Columbia Editing by Marguerita Choy

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