The Gas Fire That Scorched the World

Can't you hear, can't you hear the thunder? Right now, there are plenty of men at work down under who are currently idle, as fires burn at a major natural-gas-processing hub for Western Australia. Normally, such an event would have limited repercussions and attract far less attention, but in a world already weary from soaring commodity prices, this accident bears watching.

Explosions and fires erupted Tuesday at Apache's (NYSE: APA  ) Varanus Island facility, caused by ruptures in pipelines feeding natural gas from offshore operations. Outflows from the plant have been halted entirely, cutting off about one-third of Western Australia's gas supply. Apache says the duration of the closure won't be known until the fires are out and damage assessments completed.

Western Australia is home to some of the richest mineral reserves in the world, along with some of the largest mining operations. These mines depend on the natural gas that flows through Varanus Island. With the world's leading supply of iron ore, gold production of about 240 tons per year, and significant contributions of nickel and alumina, even relatively short-lived disruptions to mining operations could reverberate throughout the world's commodity markets.

So far, thanks to contingency planning and on-site diesel supplies, the larger miners have managed to keep operations at full capacity. Rio Tinto (NYSE: RTP  ) , BHP Billiton (NYSE: BHP  ) , Alcoa (NYSE: AA  ) , and Newmont Mining (NYSE: NEM  ) have all hurried to issue comments that their production volume has been largely unaffected. Impacts to production costs, however, will certainly materialize as these companies burn expensive diesel fuel or secure temporary supply contracts from alternative sources.

Operations at Newmont Mining's Jundee mine and its Kalgoorlie joint venture with Barrick Gold (NYSE: ABX  ) have switched entirely to diesel. Newmont assured investors that operations will continue unabated as long as the disruption "doesn't go on for a long period of time [and] we're able to find an alternative [power] source." Australian miner Newcrest Mining, which operates the world-class Telfer gold and copper mine, warned that low diesel supplies could potentially threaten operations going forward.

For shareholders of Apache or any of the mining names listed above, keep your Foolish fingers crossed that the facility will be repaired in just a few days. If the damage is more severe, the affected miners' stocks could offer attractive entry points, since substantial production disruptions would likely be absorbed by resulting increases in spot prices.

Further Foolishness:

More than 105,000 CAPS players keep an eye on financial news as well. Find out what they're thinking about your favorite stocks. It's fun and free!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can also be found acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of BHP Billiton. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool's disclosure policy enjoys a good Vegemite sandwich now and then.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 658193, ~/Articles/ArticleHandler.aspx, 9/15/2014 11:25:35 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 17,031.14 43.63 0.26%
S&P 500 1,984.13 -1.41 -0.07%
NASD 4,518.90 -48.70 -1.07%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/15/2014 4:03 PM
AA $16.39 Down -0.33 -1.97%
Alcoa, Inc. CAPS Rating: ****
ABX $16.44 Down -0.08 -0.48%
Australian Bauxite CAPS Rating: ***
APA $97.12 Up +0.88 +0.91%
Apache Corp CAPS Rating: *****
BHP $64.61 Down -0.55 -0.84%
BHP Billiton Limit… CAPS Rating: ***
NEM $25.02 Down -0.15 -0.60%
Newmont Mining Cor… CAPS Rating: ***
RTP.DL $0.00 Down +0.00 +0.00%
Rio Tinto plc (ADR… CAPS Rating: ****

Advertisement