OTTAWA — Petronas, the Malaysian state-owned global energy giant at the heart of B.C.'s LNG ambitions, was told in late 2013 that it was dealing with "very serious" safety and integrity issues throughout its offshore Malaysian operations, The Vancouver Sun has learned.

A 732-page internal audit, presented to senior management on Oct. 24, 2013, and obtained recently by The Sun, uncovered numerous problems on Petronas oil and gas platforms in the three major oil and gas fields off the Malaysian coast.

Four of those issues were described by the auditors as being "almost certain," if not fixed, to lead to "catastrophic" events.

Catastrophic is defined as an incident resulting in "multiple fatalities," "extensive damage" to the facility, "massive" harm to the environment, and a "major" international blow to the company's reputation.

The auditors also pointed to "systemic" problems relating to the lack of staff competence and training, and made more than a dozen references to "severe" corrosion issues threatening the structural integrity of the facilities.

Many of the problems dated back many years, even decades.

Auditors found six "pressure vessels" — containers on offshore platforms holding pressurized gas or oil — that were found to have internal corrosion and yet hadn't been inspected for at least 20 years.

The company's safety and integrity issues haven't been confined to offshore platforms.

Petronas has cited concerns about a number of accidents and deaths since 2011, which according to a Sun source led to ordering the 2013 internal audit. And last year, Petronas's new gas pipeline on Borneo Island was shut down, and remains out of use, due to a massive explosion because of construction on soil that proved unstable.

Petronas, which said in a statement Wednesday that it has resolved the most serious concerns outlined in the audit, is a global LNG leader that plans to use its own technical staff in the initial years of its proposed operation near Prince Rupert.

Experts asked by The Sun to review the report expressed concern.

"The B.C. public deserves a highly safe living environment," said Frank Cheng, who holds the Canada Research Chair in corrosion, materials & integrity at the University of Calgary's department of mechanical engineering. "If I were a B.C. resident I would be concerned that the corrosion problems facing Petronas, as highlighted in the report, might occur in B.C. if this LNG project goes ahead."

Cheng, who described the structural integrity issues as "very serious," said Canadian regulators would need to closely monitor Petronas to ensure such problems aren't repeated.

Another expert consulted by The Sun highlighted 10 particularly alarming issues, including two that caused him to use exclamation marks.

"Inspections overdue for 20 years!" wrote Edouard Asselin, Canada Research Chair in Aqueous Processing of Metals at the University of B.C., wrote of one flaw. "Substructure corrosion with no wall thickness measurement for 30 years!"

Asselin, describing himself as an "industry outsider," said he is reluctant to pass judgment on a company without knowing the "full story" of its operations. "However, this presentation does not cast a very good light on the maintenance procedures at these particular facilities."

Petronas has a majority stake in Pacific NorthWest LNG, which has submitted a proposal to Canadian regulators to build an $11.4-billion facility near Prince Rupert. The project includes a bridge to Lelu Island from the mainland, two liquefaction and purification plants on the island, two storage tanks, and a two-berth offshore marine terminal.

The berths will be 2.7 kilometres to the west of Lelu Island in the deep waters of Chatham Sound, via a 1.6-kilometre suspension bridge and 1.1-kilometre long jetty. An estimated 220 LNG tankers — as much as 315 metres long — would be loaded at the marine terminal each year.

The project is one of at least three LNG proposals that the B.C. government wants operational by 2020, though analysts have said it's unlikely any will meet that timeline.

One environmental group said the study should give British Columbians pause about opening the door to Petronas.

"I find this very troubling because we already have serious concerns about the project, which is situated over some of the some of the most sensitive salmon habitat in Canada," said Greg Knox, executive director of SkeenaWild Conservation Trust, after reviewing the leaked report.

Petronas is "making all kinds of promises to protect the habitat, and we don't think it can be done with the best practices and best technology.

"If their record is showing that in their operations in other parts of the world they're not even maintaining basic health and safety standards, and they are having serious structural problems that are resulting in failures, it puts into serious question whether they can operate in a safe manner for both the people who live here and who will be employed there, and it puts in to serious question whether they can protect the environment."

However, both Petronas and the B.C. government indicated that the public shouldn't worry.

The company issued a lengthy statement to The Sun on Wednesday saying that the audit was part of a broader, $10 billion US companywide program started in 2012 to "intensify and improve process safety and asset integrity" around the world.

"Plans are in place to address the identified gaps" found in the audit, while any issues classified as being of "serious" or "high" concern "have been resolved."

The Sun, in an email to the company last week, chose at random a photograph from the report showing severe rust at the company's Samarang offshore platform. Petronas replied Wednesday with "before" and "after" photos (see next page) showing that the problem had been addressed.

Petronas didn't respond directly to a question asking about the root causes that would lead to a buildup of such serious problems over many years.

When asked by The Sun about the 2014 pipeline explosion, the company also noted that if the Canadian LNG project is approved, the pipeline to the B.C. facility will be constructed by TransCanada PipeLines Ltd., an "experienced major pipeline company."

The tender for the construction of the LNG facility, meanwhile, "has attracted bids from the world's top-ranked integrated LNG service contractors, including from Canada."

Spokeswoman Julia Jaafar said the federal and B.C. governments have been working "very closely with Petronas to ensure its accountability as a responsible a corporate citizen in Canada, and provide us with valuable support and assistance to take the project forward."

B.C. deputy premier Rich Coleman, the minister responsible for natural gas development, wouldn't say if the government was aware of Petronas's internal problems in Malaysia. But in a prepared statement he did stress that LNG operators will have to adhere to a "strict" regulatory regime operated by the B.C. Oil and Gas Commission.

"As part of the province's environmental assessment process, Pacific NorthWest LNG conducted an analysis of possible accidents and malfunctions for their proposed facility in B.C. which was reviewed by the provincial government," Coleman said. "Pacific NorthWest LNG must ensure a detailed response plan is in place for emergencies or safety breaches before operations will be permitted to begin."

One expert on Malaysian politics, while describing the report as "troubling," said British Columbians shouldn't necessarily conclude that Petronas would operate in the same way on Canada's West Coast.

"I suspect that standards adhered to by Petronas vary by location, and that it isn't unreasonable to expect that they would elevate standards in line with Canadian requirements," said University of B.C. political scientist Kai Ostwald.

Yet Petronas's track record in developed countries isn't extensive. The company, which in 2012 bought Calgary-based Progress Energy Resources Corp. for $6 million, has largely focused on expanding to less-developed countries since it was created in 1974.

They include countries often avoided by western firms, like Iran, Burma and Sudan. Petronas has only recently has expanded operations to western nations like Canada.

With files from Gordon Hoekstra

poneil@postmedia.com

Twitter: @poneilinottawa

Petronas Media Response

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