Why did Prometheus 2 get cancelled?

It didn't get cancelled. Covenant IS Prometheus 2.

What essentially happened was that the original plan was or part 2 to focus on Shaw going to the Engineer planet.

But Prometheus was met with a poor reaction from many fans, with one main complaint being that it really didn't seem much like an "Alien prequel". Scott had started out calling it a prequel to Alien, but then backed away from that and said it was in the "Alien universe" but really nothing much to do with the original movie.

When it came out and had virtually nothing to do with Alien at all, a lot of fans complained. The movie didn't do too well at the box officer, either, so the studio balked at making Prometheus 2. In the end they told Scott that he could make his Prometheus 2, but on condition that it be more less like Prometheus and more like an Alien movie.

So Scott lopped out most of what he'd wanted to do with the engineers, disposing of Shaw in flashback. He kept David and covered his "Xenomorph origin" stuff with him... then stuck 30 minutes worth of Xenomorph into the last act.

As is often the case with directors who compromise what they want to do hugely for the studio, the result came out neither one thing nor the other. Prometheus fans are all like "Well this isn't much of a sequel..." whilst Alien fans (like me) are all like "Whoa, why is there still all this Prometheus stuff in there?!"

Oh well. There probably won't be another movie.