At approximately 1.30pm on 3 June 2008, an explosion at the Apache Energy Varanus Island gas processing facility's 30 centimetre gas pipeline caused it to rupture and fires to start. Approximately 153 staff were evacuated from the plant. Nobody was injured, but the facilities were forced to close temporarily.

The incident caused Western Australia's domestic gas supply to be cut by 30 per cent, as the Varanus Island facility is a major exporter of gas to the mainland. The largest impact was felt by major industry partners of Apache Energy such as BHP Billiton, Rio Tinto and Burrup Fertilisers; the disruption in gas supplies also affected small businesses. A survey by the Western Australia Chamber of Commerce and Industry found that of 300 businesses surveyed, almost half said they had been affected by the energy shortage.

The West Australian Government laid claims against Apache Northwest Pty Ltd and its co-licencees, Kufpec Australia Pty Ltd and Tap (Harriet) Pty Ltd for 'failing to maintain a pipeline in good condition and repair.' However after more than two years of litigation, the state government made a public statement that they were discontinuing the prosecution due to legal technicalities.

The Insurance Council of Australia estimated the 2008 damage at $230 million, with the 2011 estimated normalised cost of $279 million.