2026 Preview: Midwest Spot Market Participants Look to New Western Pipelines, RVP Waivers

The U.S. Midwest spot refined products market will enter the new year with questions over two proposed pipeline projects intended to move gasoline and distillate from Texas refineries to Arizona and California markets. In addition, it will have to deal with questions over how summertime sales of E15 in the region will affect supply and trade as states begin to file for waivers allowing summer sales of the higher ethanol blend.

The proposed 1,300-mile Western Gateway Pipeline would ship refined products from Borger, Texas, to Phoenix. Kinder Morgan’s existing SFPP pipeline from Colton, Calif., to Phoenix would aid the expansion by enabling the product flow to be reversed from east to west into California. The Western Gateway Pipeline sponsors are hoping to bring the line into service by 2029.

The Gold Pipeline, which is operated by Phillips 66, currently flows from Borger to St. Louis, and under the project flow will be reversed to allow refined products from Illinois refineries to flow toward Borger and supply Western Gateway. Existing Kinder Morgan terminals would provide access to the Las Vegas area. The pipeline project could impact the Midwest market by providing the region’s landlocked refiners with access to new western markets.

The Energy Information Administration said estimated California is likely to lose about 18% of its refining capacity by mid-2026 and with surrounding states like Arizona and Nevada relying on California’s refined products, these supplemental barrels could make up any supply shortfalls. “Arizona is a growing market,” Kinder Morgan’s chief executive Kimberly Dang said in the fall, adding that the proposed line would provide additional capacity to the state at a time when Phillips 66 has shuttered its Los Angeles refinery and Valero Energy is scheduled to close its Benicia refinery in Northern California by April. According to the development plan, the Western Gateway Pipeline will be capable of supplying the Arizona market with 200,000 b/d of Midwest refined products.

Another option that could affect Midwest and western refined products supply is Oneok subsidiary Magellan Pipeline’s proposed Sun Belt Connector. The roughly 440-mile line from El Paso, Texas, to Phoenix, would carry gasoline, diesel and jet fuel. This additional capacity would also allow shippers to move products from Texas and Oklahoma terminals to western markets.

In announcing its open season for the project in September, Oneok said it also was assessing commercial interest in shorter movements on its product pipelines between Houston and Arizona. The additional pipeline capacity could be available by mid- to late 2029, depending on customer interest, a final investment decision and the receipt of all necessary permits and approvals, the Tulsa, Okla.-based company said. Magellan said it plans to review bids to gauge customer interest and the project’s economics.

Midwest market participants have a vested interest in the two proposals because they could potentially increase opportunities for trade. “With multiple options being pursued right now, it will be interesting who moves forward on the westward heading pipeline,” one market participant said.

In addition, as has been the case for several years, the Midwest market will be grappling in the spring with questions surrounding RVP status. Since 2022, the EPA and Midwest state governors have been going back and forth over Clean Air Act fuel volatility limits that have barred the sale of a higher-ethanol gasoline blend during the high-demand summer driving season. At the heart of the issue is that E15 (gasoline blended with 15% ethanol) does not qualify for the 1-lb. RVP waiver that is offered to E10. To place E10 and E15 on equal footing, the governors of Illinois, Iowa, Nebraska, Minnesota, Missouri, Ohio, South Dakota and Wisconsin in April 2022 petitioned EPA to allow their states to opt out of the 1-lb. RVP waiver offered to E10.

The opt-out would essentially require refiners to supply a lower-RVP gasoline blendstock which could then be blended with either 10% or 15% ethanol. The lower-RVP blendstocks made their first and brief appearance in the market this year, before the federal government offered a series of 20-day waivers throughout the summer that cleared the way for E15 sales without the use of a lower-RVP blendstock.

After those waivers were announced, market participants no longer sought to secure the lower-RVP blendstocks. In early December, a coalition of refined, renewable and retail fuel groups asked President Trump to offer “long-term policy certainty” on year-round access to E15. Whether a long-term solution or another series of E15 waivers is issued in 2026, market participants are hoping for less uncertainty than in previous years and have argued that temporary waivers are not a long-term solution.

“Legislation allowing the year-round, nationwide sale of E15 would improve fungibility and substantially reduce many of the complexities that arise for our industries as we operate in a national marketplace,” market participants said.

With the new proposed pipelines still years away, the RVP question remains a top concern of market participants. The only question now, one market player said, is the lower “RVP in or out?”

Reporting by Jason Titze, jtitze@opisnet.com; Editing by Jeffrey Barber, jbarber@opisnet.com