Phillips 66, Kinder Morgan, HF Sinclair take FID on Western Gateway pipeline

Phillips 66, Kinder Morgan and HF Sinclair announced this week that they had made a final investment decision (FID) on the Western Gateway pipeline project.

Western Gateway is a planned refined products pipeline system that would create a new fuel supply route from St. Louis, Missouri, and expanded Gulf Coast origin points to Arizona and California. It would span 1,300 miles (2,092 km) and would have the capacity to carry 230,000 barrels per day (bpd), with the option for expansion at a later date “with limited capital and no new pipe necessary” depending on future demand.

The partners in the project said they had finalised a joint venture agreement, under which Phillips 66 would own a 49.9% interest in the pipeline system, with Kinder Morgan holding 35.1% and HF Sinclair owning 15%.

The project will include a roughly 900-mile (1,448-km) newbuild section of pipeline from Borger, Texas, to Phoenix, Arizona. Phillips 66 will build and operate this section of the system. Meanwhile, Kinder Morgan will contribute its existing SFPP East Line pipeline from El Paso to Phoenix and Tucson, Arizona, and its SFPP West Line pipeline from Colton, California, to Phoenix, which will be reversed to move fuel west to California. Kinder Morgan will continue to operate those pipelines.

According to the announcement, Phillips 66’s Gold pipeline will also support supply to Western Gateway. Gold – which will connect to the Explorer pipeline – will be reversed to allow refined products to flow towards Borger.

The partners have estimated Western Gateway’s enterprise value at roughly $5.0bn. The contribution of Kinder Morgan’s existing pipelines accounts for around $1.5bn of this. Kinder Morgan will also make a cash contribution of around $250mn to the joint venture, while Phillips 66 will contribute around $2.5bn and HF Sinclair will contribute roughly $750mn.

The Western Gateway system will be underpinned primarily by 10-year, take-or-pay contracts. The partners concluded a second open season for the project in April this year, saying at the time that they had secured enough long-term shipper commitments to move the project forward.

“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,” stated Phillips 66’s chairman and CEO, Mark Lashier. “This project will connect our Central Corridor and Gulf Coast refining assets to our West Coast and Southwest Marketing assets and demonstrates the value of our integrated business model and the opportunities it creates,” he added.

“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,” stated Kinder Morgan’s CEO, Kim Dang.

And HF Sinclair’s CEO, Franklin Myers, described the project as a “transformational endeavour shaping the fuels markets of the West”.