Phillips 66, Kinder Morgan greenlight $5B Western Gateway pipeline

A $5 billion pipeline would for the first time deliver motor fuels into California, easing a "fuel island" that leaves drivers paying the nation's highest prices.

Phillips 66, Kinder Morgan and HF Sinclair approved the $5 billion Western Gateway Pipeline, a 1,300-mile refined products system that would for the first time deliver gasoline, jet fuel and diesel into California.

"This project brings together strategic supply access, existing infrastructure and experienced operators to improve affordability and assurance of supply for customers in the Western United States," Kinder Morgan CEO Kim Dang said.

Under the joint venture, Phillips 66 will own 49.9 percent, Kinder Morgan 35.1 percent and HF Sinclair 15 percent. The system has a design capacity of 230,000 barrels per day, with Phillips 66 contributing nearly $2.5 billion in cash, Kinder Morgan about $250 million plus assets valued at roughly $1.5 billion, and HF Sinclair about $750 million.

The decision comes as California, long described by analysts as a "fuel island" cut off from U.S. refining hubs, absorbs the loss of about 18 percent of its refining capacity after Phillips 66 shut its Los Angeles-area plant in 2025 and Valero closed its 145,000-barrel-per-day Benicia facility.

The project pairs a roughly 900-mile new-build 20-inch and 24-inch line from Borger, Texas, to Phoenix with existing Kinder Morgan infrastructure. Kinder Morgan will contribute its SFPP East Line from El Paso to Phoenix and Tucson and reverse its SFPP West Line from Colton, California, to Phoenix so product flows east to west into California. Phillips 66 will reverse its Gold Pipeline, which runs from Borger to St. Louis, to draw supply from Midwest and Gulf Coast origin points. No new pipeline construction is planned within California.

The system is supported primarily by 10-year take-or-pay contracts, and completion is targeted for 2029 subject to regulatory approvals. The companies said the route also provides a connection into Las Vegas and allows for future expansion with limited additional capital.

A 'Fuel Island' Gets a Lifeline

David Hackett, president of transportation energy consultancy Stillwater Associates in Irvine, called the project "a net positive" for Southern California, estimating it could shave "around a nickel" off each gallon of gasoline sold in the region. The average price for a gallon of regular in San Diego stood at $5.68 on Tuesday, $1.67 above the national average, according to AAA.

The final investment decision follows a successful open season earlier this year in which Phillips 66 and Kinder Morgan said they received "strong market interest" and commitments from shippers. Phillips 66 shares rose 3.3 percent to an intraday high of $223.26 on Tuesday, while Mizuho raised its price target on the refiner to $220 from $212 with an Outperform rating. WTI crude for September delivery rose 1.3 percent to $83.16 a barrel, and Brent gained 1.1 percent to $90.12.

Gov. Gavin Newsom's office welcomed the announcement, with deputy communications director Anthony Martinez calling it "a bridge connecting California to the rest of the country's fuel supply." The state has banned the sale of new gasoline-powered cars, SUVs and light trucks by 2035, but analysts note the pipeline would reduce California's reliance on costlier imported refined products in the interim. If the project clears permitting on schedule, the first barrels could reach the West Coast by 2029, giving refiners a domestic outlet that has been absent since the region's last major pipeline additions decades ago.

This article is for informational purposes only and does not constitute investment advice.