BP began the application process for a development consent order (DCO), which is required for nationally significant infrastructure projects, in March 2024.
If the government had granted the firm a DCO on Thursday, it would have been given the power to compulsorily purchase the land it needs.
But Teesworks Ltd, which is part of STG, had attacked the plans and in August received planning permission from Redcar and Cleveland Borough Council to build a giant AI data centre there instead.
In a letter detailing its opposition to BP’s plans, STG claimed the proposed data centre was of “critical national importance”.
BP previously said it was willing to have discussions aimed at finding a solution “that would enable both developments to co-exist”.
Previously, it had said the development would have had a “peak construction workforce of 1,300 jobs”.
Teesworks is run as a joint venture between the publicly owned and funded South Tees Development Corporation, led by the Tees Valley Combined Authority (TVCA), and Teesside businessmen Martin Corney and Chris Musgrave.
The men initially owned 50% of the shares in Teesworks, but that increased to 90% in 2021 with the remaining 10% staying in public hands.
The Department for Energy Security and Net Zero (DESNZ) said the decision to pull out had been made by BP.
“We continue to provide a route for hydrogen projects in Teesside, including Tees Green Hydrogen, which is moving towards final investment decision, along with several other projects creating high-quality jobs for the region,” a spokesperson said.