Phillips 66, Kinder Morgan, HF Sinclair OK Texas-to-US West Coast Product Pipeline
Kinder Morgan, Phillips 66 and HF Sinclair on Tuesday made a final investment decision and moved forward with a joint venture to build the Western Gateway Pipeline, a 1,300-mile refined product pipeline slated to provide fuel to California, Arizona and the broader U.S. West Coast region.
The Western Gateway is a proposed refined products pipeline that is slated to connect the U.S. Midwest and Gulf Coast refinery supply to the Arizona and California markets. The project aims to supply 230,000 b/d of Midwest-sourced refined products into Arizona, which would replace the 125,000 b/d Phoenix currently receives via the Kinder Morgan SFPP line from California, OPIS previously reported.
With a targeted in-service date of mid-2029, the project is expected to connect Las Vegas through the existing Kinder Morgan CalNev Pipeline.
The Phillips 66 Gold Pipeline, that flows from Borger to St. Louis, and the Kinder Morgan SFPP pipeline from Colton, Calif., to Phoenix will be reversed, providing flow from east to west. Refineries in the Midwest and Gulf Coast will feed into a 900-mile, new-build pipeline from Borger, Texas, to Phoenix, OPIS previously reported.
“By combining the capabilities of Phillips 66, Kinder Morgan and HF Sinclair, Western Gateway is expected to strengthen fuel supply reliability and deliver a more cost-effective, resilient path for growing markets across the West,” Phillips 66 Chief Executive Mark Lashier said in a statement.
Lashier added that the project is connecting Phillips 66’s U.S. Central Corridor and Gulf Coast refineries to the West and Southwest region.
The project was initially a partnership between Kinder Morgan and Phillips 66, with HF Sinclair later entering as a third owner. HF Sinclair will own 15% ownership stake of the joint venture, while Kinder Morgan and Phillips 66 own 49.9% and 35.1%, respectively.
HF Sinclair told OPIS in an email that it joined the product pipeline project through commercial developments, which led to the formation of a three-party venture and the final investment decision.
“Western Gateway is separate from HF Sinclair’s previously announced pipeline expansion plans, and we view the projects as complementary opportunities to strengthen fuel supply across western markets,” the company said.
On July 28, HF Sinclair said it was moving forward with its own plan for a refined product pipeline expansion project to deliver fuels to the West Coast markets from its refineries in the Rockies.
A West Coast trading source said the Western Gateway Pipeline has some advantages over other proposals because it originates from the Wood River, Ill., area and could be used to move ULSD and jet fuel into markets like Arizona and Nevada.
Jason Gabelman, analyst at TD Cowen, said in a note that the expected addition of more than 100,000 b/d of refined product supply to California “will likely compress margins once the pipeline is done,” which could negatively affect margins of companies with refining operations in California like PBF Energy and Marathon Petroleum.
The project would be a major advantage for Arizona and Nevada markets, which have historically relied on California. Arizona relies on the Golden State for as much as 50% of its fuel supply, according to analyst firm Stillwater Associates.
Meanwhile, Nevada depends on California for close to 90% of its fuel, Nevada’s Fuel Resiliency Committee has said.
Western Gateway’s enterprise value stands at around $5 billion, according to the three companies. Kinder Morgan will contribute $1.5 billion to the venture via its existing SFPP East Line and West Line assets, as well as $250 million in cash payments. Phillips 66’s cash contribution is said to total around $2.5 billion, with HF Sinclair contributing $750 million to the project.
–Reporting by Shaheer Naveed, snaveed@opisnet.com; Editing by Frank Tang, ftang@opisnet.com