Phillips 66, Kinder Morgan, HF Sinclair Greenlight $5 Billion Western Gateway Fuel Pipeline

Phillips 66 (PSX), Kinder Morgan (KMI), and HF Sinclair (DINO) have reached a final investment decision and formalized a joint venture agreement to construct the Western Gateway Pipeline System, a $5 billion project designed to move refined fuel products from the U.S. Midcontinent and Gulf Coast to markets across the West.

The 1,300-mile system will transport up to 230,000 barrels per day of gasoline, diesel, and other refined products, creating a new supply route from St. Louis and Gulf Coast refining hubs to Arizona and California. The partners expect the system to be completed in 2029, subject to securing necessary permits and regulatory approvals.

Under the agreement, Phillips 66 will hold a 49.9% stake in the joint venture, Kinder Morgan will own 35.1%, and HF Sinclair will control the remaining 15%. The ownership structure reflects each company's contribution to the project, which combines new construction with existing infrastructure.

Phillips 66 will build and operate a new 900-mile segment running from Borger, Texas, to Phoenix, Arizona, consisting of 20-inch and 24-inch pipe. The refining and midstream company will contribute $2.5 billion in cash to the venture. Kinder Morgan will contribute its existing SFPP East Line pipeline from El Paso, Texas, to Phoenix and Tucson, Arizona, as well as its SFPP West Line from Colton, California, to Phoenix, which will be reversed to move products east to west into California. Those assets are valued at approximately $1.5 billion, and Kinder Morgan will add $250 million in cash. HF Sinclair will contribute $750 million.

"The final investment decision reflects the strength of this industry partnership," said Phillips 66 chairman and CEO Mark Lashier. "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."

Lashier added that the project will connect the company's Central Corridor and Gulf Coast refining assets to its West Coast and Southwest marketing operations, demonstrating the value of its integrated business model.

The system will also receive supply from Phillips 66's Gold Pipeline, which will be reversed to enable refined product flows toward Borger and connect to the Explorer Pipeline.

Kinder Morgan CEO Kim Dang said the project "brings together strategic supply access, existing infrastructure and experienced operators to improve affordability and assurance of supply for customers in the Western U.S." She noted that the company expects to "earn attractive returns on our investment based on the incremental project earnings above those of our contributed assets."

The project will be underpinned primarily by 10-year, take-or-pay contracts, a structure that guarantees payment to the pipeline owners regardless of whether customers actually ship volumes. This contractual framework is designed to provide stable, predictable cash flows for all three partners.

For Kinder Morgan, take-or-pay contracts currently account for 65% of its cash flow, with most of the remainder coming from fee-based sources (26%) and commodity price hedges (5%). The Western Gateway project adds another layer of contracted revenue that could support the company's dividend growth trajectory. Kinder Morgan has increased its payout for nine consecutive years and currently yields approximately 3.8%.

The company had $9.6 billion in growth capital projects in its backlog at the end of the second quarter, with expected in-service dates through mid-2030. Most of those projects—$8.8 billion—are gas pipelines, making Western Gateway a meaningful diversification into refined products infrastructure.

The pipeline design allows for future capacity expansion with limited capital investment required and no additional pipeline construction anticipated, positioning the system to accommodate demand growth in Western markets over time.

Project Structure at a Glance

Partner	Ownership	Cash Contribution	Asset Contribution
Phillips 66	49.9%	$2.5 billion	None (builds new 900-mile segment)
Kinder Morgan	35.1%	$250 million	SFPP East and West Lines (~$1.5 billion)
HF Sinclair	15%	$750 million	None

Note: Kinder Morgan will continue to operate its contributed SFPP pipelines; Phillips 66 will construct and operate the new Borger-to-Phoenix segment.

The Western Gateway project addresses a longstanding logistical challenge in U.S. refined products markets. The Western United States has historically relied on a limited number of supply corridors for gasoline and diesel, creating vulnerability to disruptions and price volatility. By establishing a new route from the Gulf Coast and Midcontinent refining centers to Arizona and California, the system aims to enhance supply security and reduce transportation costs for consumers in the region.

The decision to proceed comes as U.S. refiners and midstream operators continue to evaluate long-term demand trends for refined products. While the energy transition has prompted some companies to pivot toward lower-carbon investments, the partners are betting that reliable fuel logistics will remain essential infrastructure for decades. The take-or-pay contract structure mitigates volume risk, while the design's expansion capability provides optionality if demand exceeds initial projections.

For investors, the project represents a capital-efficient growth opportunity. Kinder Morgan's relatively modest $250 million cash outlay—combined with the contribution of existing, already-depreciated pipeline assets—allows it to participate in a $5 billion system at a fraction of the total cost. The incremental cash flows from the project are expected to be highly visible given the contracted revenue structure, potentially supporting continued dividend increases into the 2030s.

Phillips 66, as the largest stakeholder and operator of the new construction segment, gains a direct link between its refining operations and its West Coast marketing footprint, potentially improving margins by reducing reliance on third-party transportation.

The joint venture structure also distributes construction and permitting risk across three financially strong partners, each with deep operational experience in the regions involved. The project remains contingent on obtaining necessary permits and regulatory approvals, a process that can present challenges for interstate pipeline infrastructure but is generally more straightforward for refined products lines than for crude oil or natural gas projects.