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Audit rattles Malaysia-based Petronas Energy giant’s safety record censured by internal report, but BC government defends standards; First Nation claims title to key land GARY PARK For Petroleum News
Already struggling against a growing tide, British Columbia’s Pacific NorthWest LNG venture now faces problems originating within Petronas, the lead partner in an Asian consortium that underpins the C$36 billion plan.
A 732-page internal audit submitted to senior management two years ago and obtained by the Vancouver Sun pinpointed an array of problems at the Malaysian company’s global oil and gas operations.
The newspaper said the auditors concluded that the safety issues were “almost certain (to result) in catastrophic” events.
The report said that a failure to take prompt action could result in “multiple fatalities,” “extensive damage” to facilities, “massive” harm to the environment and a “major” blow to the state-owned company’s reputation.
It said many of the deficiencies dated back many years, with even Petronas citing its concern about a number of accidents and deaths in the two years leading up to the 2013 audit.
Inadequate training cited The company said the asset-audit, which pinpointed inadequate training of employees and corrosion threatening the structural integrity of facilities, resulted in immediate action.
Executive Vice President Wee Yiaw Hin said Petronas has “acknowledged the gaps identified in the report and we have executed a comprehensive program to resolve the issues and ensure the safety of our people, environment and our facilities.”
Rich Coleman, British Columbia’s deputy premier and natural gas development minister, told the Vancouver Sun that although the audit caught him off-guard he was not concerned about the ability of Petronas and its Pacific NorthWest partners from China, South Korea, Japan and Brunei, “to meet the highest standards in the world” that have been set by the British Columbia government and the “strict” regulatory regime operated by the B.C. Oil and Gas Commission.
Coleman indicated he was reassured that Petronas had commissioned the audit and claimed the company’s record in the LNG sector “is impeccable.”
He also found comfort in the fact that the other partners in Pacific NorthWest have reputations they will want to safeguard and that Petronas’ stake in the project will be overseen by Progress Energy, the Calgary-based gas producer which was acquired for C$6 billion by Petronas in 2012.
In addition, Petronas has noted that its pipeline from the Progress gas fields in northeastern British Columbia to the liquefaction plant and tanker port near Prince Rupert will be built and operated by TransCanada, which Petronas describes as an “experienced major pipeline company.”
Petronas most aggressive More than any of the British Columbia LNG proponents, Petronas has taken the most openly aggressive stance, squeezing the Canadian and British Columbia governments to provide tax breaks and assurances to protect it from any future tax increases.
Far from being shaken by the audit findings, Coleman said he remains “bullish” about the Pacific NorthWest proposal.
But John Horgan, leader of the British Columbia’s New Democratic Party, which conditionally endorses the concept of LNG development, was disturbed by the audit findings.
“It’s jaw-dropping that a company that has been doing business with the government of British Columbia for the past number of years would have a track record like this,” he said. “If the government didn’t know about this record, they should have. And if they did know and they didn’t tell people, why is that?”
Horgan said the audit shows that Petronas “is a state-owned company that clearly has been cutting corners when it comes to the environment and safety.”
Andrew Weaver, the only Green Party member in the British Columbia legislature, said the Vancouver Sun’s reporting was devastating for a project that is on shaky ground due to global LNG prices and First Nations opposition.
He said “it’s going to be enormously hard (for Petronas) to get public trust” and secure a “social license” to proceed.
Horgan said he is primarily concerned that the government of Premier Christy Clark has “bent over backwards to try and accommodate Petronas with respect to taxation and royalties and spent no time” examining the company’s environmental, health and safety records.
“That lack of due diligence is shocking to me and should be shocking to British Columbians,” he said.
Petronas reviewing engineering In an effort to deflect attention from the audit, Petronas said it is reviewing the engineering for its terminal, as well as the location of a bridge and jetty connecting to the proposed berth for LNG carriers on Lelu Island.
A spokesman for Pacific NorthWest said “significant consultation has taken place with local First Nations,” who have warned about the impact on fish habitat.
Of the five Tsimshian First Nations consulted last year, two have signed impact benefit agreements, two have yet to make a decision and the Lax Kw’alaams tribe has set up an occupation camp on Lelu Island.
“It is important to take our time and hear from all interested parties as we move through the design phase of our proposed facility,” the spokesman said.
But the Lax Kw’alaams have signaled that they are not much interested in negotiating by filing a notice of civil claim that makes their case in the British Columbia Supreme Court to gain title to Lelu Island.
The tribe’s Mayor Garry Reece said an award of ownership is needed for his community to “protect crucial salmon habitat, protect our food security and ensure that governments and industry are obligated to seek our consent.”
The defendants in the legal action include the British Columbia and Canadian governments, the Prince Rupert Port Authority and Pacific NorthWest.
Analyst: Redesign a challenge AltaCorp Capital analyst Mark Westby, the co-author of a new report on British Columbia’s chances of launching an LNG industry, said the challenge facing Pacific NorthWest is how to redesign infrastructure to move it farther away from the ecologically sensitive area.
He cautioned that if the New Democratic Party wins the Canadian election on Oct. 19 it is likely to order more detailed environmental assessments that could further delay the project.
The AltaCorp report said that of the 20 LNG proposals on the table in British Columbia, four have the best chance of proceeding - Pacific NorthWest, LNG Canada led by Royal Dutch Shell, WCC LNG co-owned by ExxonMobil and Imperial Oil, and a small joint venture backed by AltaGas.
A report by investment dealer Peters & Co. said there could be delays and cancellations involving projects, but it believes that LNG exports are likely to take place from the British Columbia coast.
“The coming 12 months will prove pivotal for LNG development on the Canadian West Coast,” the Calgary-based firm said.
“High capital costs, the required development of infrastructure, the extended regulatory approval process and weakness in Asian LNG prices increase the risk of deferral or cancellation of projects in the near term,” the 21-page study said.
Kitimat LNG ‘substantially started’ Peters & Co. said Kitimat LNG, co-owned by Chevron and Australia’s Woodside Petroleum, “has been substantially started” which means the project will not lose the environmental assessment certificate it received in 2006.
It said Pacific NorthWest appears to lead the British Columbia field, although it may not receive a federal environmental ruling until early 2016.
The firm also believes that Aurora LNG, led by Nexen (which is wholly owned by China’s CNOOC Ltd.) with Japan’s INPEX and JPG as partners, remains in the running.
But even if only a handful of projects go ahead, Peters & Co. said that would bolster the operation of natural gas producers in British Columbia’s Montney formation and Alberta’s Deep basin.
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