Open Season for Western Expansion: Kinder Morgan and Phillips 66 Launch Western Gateway Pipeline Connecting Midwest Supply to the Southwest and California

Just a month ago, we explored the possibility of a Sun Belt Connector pipeline – now, we have another potential pipeline project seeking to reshape Western fuel logistics. Kinder Morgan, Inc. and Phillips 66 have announced the binding open season for an ambitious new refined products corridor: the Western Gateway Pipeline. Announced on October 20, the project pairs major midstream operators, leveraging both new build and significant reversals of existing assets. If built, the Western Gateway would, for the first time, supply California with refined fuels via pipeline directly from outside the state. This marks a pivotal shift for a region historically dependent on isolated in-state refineries and waterborne imports – offering new supply resilience for California, Arizona, and Nevada.

Proposed Western Gateway Pipeline MapImage source: https://westerngatewaypipeline.com/project-details

 

Why This Matters: Key Market Drivers

The Western Gateway aims to address a convergence of market trends:

• California’s refining crunch: Ongoing and imminent refinery closures, most notably the Phillips 66 Los Angeles site, are tightening local supply and adding upward pressure to West Coast prices.
• Rapidly increasing Arizona demand: Arizona’s refined product needs – particularly jet fuel – are projected to climb quickly as the state’s population and economy boom.
• Shifting Midcontinent/Texas strategy: With margin pressures mounting in Texas and Midcontinent markets, the West represents a premium outlet, provided the right infrastructure is in place.

 

Implications for Market Participants

Opportunities abound for a variety of stakeholders:

• Retailers, airlines, and commercial buyers may gain more competitive, resilient supplies as legacy California refinery volumes shrink.
• Midcontinent and Texas refiners can access premium Western markets, capturing attractive netbacks and hedging against volatile export demand.
• Marketers/traders stand to benefit from new inter-regional arbitrage opportunities unlocked by pipeline connectivity.

 

Strategic Questions Remain…

• Is Western Gateway a fit? Shippers and end-users must evaluate how this new route compares—economically and logistically—to existing California-sourced supplies or Gulf Coast waterborne routes.
• What are the economic tradeoffs? Evaluating Gateway commitments means understanding landed cost scenarios, comparing netbacks, and modeling risks under a range of market and regulatory outcomes.
• How will competitors respond? The launch closely follows the open season for ONEOK’s Sun Belt Connector, a Texas-to-Phoenix rival with similar objectives but smaller in scope. Will the market support both projects? How will existing pipeline operators reposition flows and tariffs?

 

Is It a Done Deal?

Not yet. This open season will test shipper interest, determine tariff revenues, and potentially attract further investors. Shippers have until December 19, 2025, to submit capacity bids. Even with strong interest, design, regulatory approvals, permitting, and construction will take years to complete. Notably, Kinder Morgan also recently held a binding open season (August 18-September 19, 2025) for a small expansion of its East Line – from El Paso to Tucson. That project received sufficient long-term, take-or-pay shipper commitments and will add an additional 2,500 barrels per day of diesel capacity to Tucson, Arizona. Pending the receipt of all permits and approvals, the East Line project is expected to be in service no later than April 1, 2026.

 

The California Landscape

• The Western Gateway expansion would unlock currently bottlenecked flows from Texas to Phoenix, greatly improving supply access to Arizona. In fact, this expansion would help Arizona to reduce its dependency on California. Furthermore, reversing the segment from Phoenix to Colton also means Las Vegas could, for the first time, receive supply directly from Texas by pipeline. By opening up new supply routes to Phoenix and Las Vegas, California refineries which formerly supplied those markets will be able to supply more of their production to California, partially offsetting the impact of pending refinery shutdowns.
• Investing in pipelines amid long-term declining demand is risky but could still provide valuable outlet flexibility – especially as California remains an attractive, supply-short market. This is also a hedge against local supply crunches.
• Minimal permitting would be required in California for this project since little new infrastructure is planned inside the state; the changes are concentrated on pipeline reversals and terminal adjustments, mainly at Colton.
• Environmental and political hurdles remain – California’s climate for new hydrocarbon projects is challenging and can be unpredictable.
• As the landscape of Western U.S. fuels supply shifts, actionable analysis and scenario modeling grow more critical. Current demand dynamics and competition from projects like the Sun Belt Connector will impact final capacity allocations and tariff structures.

 

Stillwater’s Actionable Analysis

The 2025 edition of Stillwater’s West Coast Supply/Demand Outlook is hot off the press this week. Starting from a 2024 baseline, our outlook provides an outlook through 2040 with insights into the likely supply and demand balances for gasoline, diesel, jet fuel, renewable diesel, biodiesel, ethanol, and SAF for the Pacific Northwest, Northern California, and Southern California. Contact us to learn how infrastructure developments like the Sun Belt Connector and Western Gateway could impact supply and demand balances, margins, and strategy.