The new estimate is down 200,000 barrels a day from a forecast the NEB released just last year because of the massive cost increases and labor shortages that have plagued major projects in the region.

The forecast was cut "in view of the rapid escalation of costs," Bill Wall, an oil market analyst at the regulator, told reporters.

The oil sands of northern Alberta are the biggest storehouse of oil outside the Middle East, containing an estimated 174 billion barrels of oil. But freeing the tar-like bitumen trapped in the sand and upgrading it to refinery-ready synthetic crude is technically challenging and expensive.

New projects to tap the resource have all faced blown budgets. Most recently, Canadian Natural Resources Ltd said last month that its 110,000 barrel per day Horizon oil sands project was nearly C$1 billion (US$1.02 billion) over budget, at C$6.8 billion, with less than a year left before work is complete.

The NEB's study, a forecast of national energy supply and demand to 2030, said oil sands construction costs have risen 40 to 50 percent over the past two years as producers cope with higher steel and concrete costs, a shortage of engineers and skilled labor, and strained provincial infrastructure.

The cost of adding a new barrel of synthetic crude production capacity now ranges between C$80,000 and C$100,000 a barrel. Those costs may also rise as governments move to restrict greenhouse-gas emissions, while profits are squeezed by tax hikes and the strengthening Canadian dollar.

"These challenges have slowed the pace of activity somewhat and a number of companies are reassessing the economics of their projects," the regulator's report said.

Still, the NEB concludes that high oil prices, Canada's political stability and the huge size of the available reserves will still prompt producers to invest in new oil sands projects.

In its study, the board also said it expects energy demand in Canada to grow between 0.3 percent and 1.4 percent a year to 2030.