Fuel markets the western United States will have a new supply route with Western Gateway, the pipeline system for refined products promoted by Phillips 66, Kinder Morgan, and HF Sinclair. The project is valued at approximately US$5 billion and will connect new supply sources with Arizona and California. The companies formalized the joint venture and made the final investment decision to develop the infrastructure.
The system will have a total extent of approximately 1,300 miles (2,092 km) and a design capability of 230,000 barrels per day its configuration will combine new infrastructure with existing pipelines to transport fuels from St. Louis and points along the Gulf Coast to the western United States.
Western Gateway will have 230,000 barrels per day
Specifically, the project includes the construction of some 900 miles (1,448 km) of new pipelines between Borger, Texas and Phoenix, Arizona. The section will use 20- and 24-inch diameter pipes and will be under the responsibility of Phillips 66 both during construction and operation.
This infrastructure will incorporate existing Kinder Morgan assets; the company will contribute the SFPP East Line which connects El Paso with Phoenix and Tucson and the SFPP West Line, which links Colton, California with Phoenix.
The latter will undergo a significant operational modification; its flow will be reversed to allow the movement of refined products from the east to California. Kinder Morgan will continue to operate both systems once they are integrated into the project.
Furthermore, Western Gateway’s supply will be backed by the Gold Pipeline de Phillips 66 connected to the Explorer Pipeline. The Gold Pipeline flow will also be reversed so that refined products can be moved towards Borger and subsequently incorporated into the new pipeline.
Phillips 66 will own 49.9% of the project
Ownership of the system will be divided among the three participating companies, Phillips 66 will control 49.9% while Kinder Morgan will have 35.1% and HF Sinclair will own 15% remaining.
In terms of capital, Phillips 66 expects to contribute around US$2.5 billion in cash HF Sinclair will contribute approximately US$750 million and Kinder Morgan will make cash contributions close to US$250 million.
Kinder Morgan will also contribute its SFPP East Line and SFPP West Line assets to the joint venture after the new Borger-Phoenix connection is completed. These assets have been valued at approximately US$1.5 billion.
In this way, Western Gateway will leverage existing facilities in the region while incorporating a long new section. This configuration reduces the amount of entirely new infrastructure needed to establish the corridor between Texas, Arizona, and California.
Ten-year contracts back the investment
From a commercial point of view, a significant part of the new system will be supported by 10-year take-or-pay contracts under this arrangement, contractual commitments provide income associated with the contracted capacity over a defined period.
Phillips 66 believes that combining the assets of the three companies will improve the reliability of fuel supply towards Western markets. Its president and CEO, Mark Lashier he noted that the project will connect refining assets in the Central Corridor and the Gulf Coast with commercial operations located on the West Coast and in the Southwest.
For her part, Kinder Morgan CEO Kim Dang highlighted the combination of access to supply, existing infrastructure, and operational expertise. The company expects to see returns from the additional revenue generated by Western Gateway exceeding those from the assets it will contribute to the joint venture.
HF Sinclair will also participate as a financial and industrial partner; its CEO, Franklin Myers, highlighted the project’s potential within the fuel markets of the western United States.
Western Gateway will supply fuel markets in the west
In addition to their 230,000 barrels per day initial capacity, Western Gateway it will be designed to accommodate future expansion as demand increases. According to the companies, this expansion can be achieved with limited additional investment and without installing new pipelines.
This feature will allow for increased utilization of the existing infrastructure and systems incorporated into the joint venture. The configuration also creates a transportation route that integrates various origin points with Arizona and California.
The geographical dimension of the project is considerable; Western Gateway will connect supply from St. Louis and expanded points along the Gulf Coast with the Borger-Phoenix corridor and subsequently with the infrastructure leading to Tucson and California.
The project is now subject to the process of obtaining regulatory permits and approvals if the planned schedule holds, the companies expect to complete Western Gateway in 2029.
With the final investment decision made, Phillips 66, Kinder Morgan and HF Sinclair move from the planning phase to an execution scheme supported by capital contributions, existing assets and long-term contracts. Western Gateway it will thus be configured as a new midstream corridor to transport refined products to some of the main fuel markets in the western United States.
Source: Hydrocarbon Processing
Photo: Shutterstock
