Western Gateway Pipeline Proposal Leaves Gasoline Blending Concerns ‘Unresolved’
CORONADO ISLAND, Calif. – Uncertainty looms over the Western Gateway Pipeline system’s role in California’s fuel supply as “unresolved” blending concerns emerge, USC professor Michael Mische said Wednesday at the California Fuels & Convenience Alliance summit.
Kinder Morgan can ship multiple grades of gasoline and nearly a dozen grades of product on the SFPP System, and will maintain the ability to ship those grades once the Western Pipeline is complete, Kinder Morgan Director of Corporate Communications Melissa Ruiz told OPIS.
The proposed 1,300-mile refined product pipeline aims to supply 230,000 b/d of Midwest-sourced refined products into Arizona, replacing the 125,000 b/d Phoenix currently receives via the Kinder Morgan SFPP line from California, OPIS previously reported.
The system will also have ability to ship product north to Las Vegas markets through the existing Kinder Morgan CalNev Pipeline, according to company statements.
The Kinder Morgan SFPP West Line from Colton, California, to Phoenix would be reversed, enabling east-to-west flow into the Golden State.
Mische expressed support for the first-ever east-to-west pipeline entering California, but cautioned attendees not to be “fooled” by its potential to reshape the state’s fuel supply, saying differences in gasoline blending specifications could significantly limit the system’s impact.
California requires a specialized gasoline blendstock, known as CARBOB, that’s formulated to meet the state’s stringent fuel specifications after ethanol is added.
Arizona’s AZRBOB also contains a specialized cleaner-burning gasoline blendstock formulated for Phoenix-based markets. However, specifications differ from California’s CARBOB blend, limiting the ability to interchange the two products.
Both special blends are more costly for refiners to produce because of the additional processing steps and pricier blending components needed to refine the formulations, according to the Energy Information Administration.
Unlike its southern neighbors, Nevada does not have a statewide boutique gasoline specification and predominantly leans on conventional gasoline to serve much of the state’s market. Clark County has a separate winter gasoline program, but its former cleaner-burning gasoline program has been suspended since 2009.
Mische noted that many U.S. refineries are not equipped to blend California’s boutique gasoline and are unable to meet the requirements set forth by the state.
Refineries connected to the Western Gateway Pipeline will be capable of producing both CARBOB and AZRBOB, Kinder Morgan’s Ruiz said.
Outside of California, Washington is home to the major domestic sources of CARBOB. According to company statements, Phillips 66 produces CARBOB at its 110,000 b/d Ferndale, Wash. refinery, alongside HF Sinclair’s 149,000 b/d Puget Sound facility.
Arizona’s specialized gasoline market is supplied by a relatively narrow group of refiners, including Marathon Petroleum’s El Paso refinery, HF Sinclair’s Artesia refinery and Delek’s Big Spring refinery, while California refiners also regularly supply the state.
Arizona relies on California for nearly half of its transportation fuel needs, according to the California Energy Commission. Nevada depends on California for close to 90 percent of its fuel, the state’s Fuel Resiliency Committee has said.
“Is it going to be Arizona blend, are they switching to California blend,” stated Mische. “I don’t think so.”
Kinder Morgan currently ships both AZRBOB and CARBOB on the same pipeline, and will maintain the ability to do so once the Western Gateway project is complete, Kinder Morgan’s Ruiz said.
California has the most regulated gasoline requirements in the country. The state’s officials have also recently declined emergency waivers issued by the EPA to help blunt high gasoline prices, leaving some hesitant that California’s environmental agencies would accept a new blending formulation.
The looming “unanswered” questions surrounding the Western Gateway Pipeline’s potential contribution to California’s fuel supply have left experts speculating how much of an impact the system will have on California’s gasoline prices.
Among the list of concerns, Mische also pointed to the limited supply likely to reach California.
Mische estimates that of the proposed 230,000 b/d capacity, Arizona will receive 125,000 b/d, another 25,000 b/d set to Nevada with the remainder bound for Southern California.
“How much does that leave for California,” questioned Mische. “Somewhere between the low end of 55,000 barrels (daily), top end 105,000 barrels (daily).”
Jason Gabelman, analyst at TD Cowen, said the additional proposed supply into 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, OPIS previously reported.
Mische also outlined the lengthy process of switching the flow on Kinder Morgan’s pipe to allow the east-to-west moves, stating that reengineering the segment is not “that easy” and that it’s “absolutely absurd” to believe the work will be as easy as flipping a switch.
Mische warned of legal challenges likely to emerge as construction begins, saying “invariably” someone will file a lawsuit.
The Western Gateway Pipeline has a targeted in-service date of mid-2029.
“I’m in favor of (the Western Gateway Pipeline),” said Mische. “We need it.”