ONEOK (OKE) continues to unlock opportunities from its Magellan Midstream acquisition. The company plans a new greenfield pipeline that would take on Kinder Morgan (KMI) for market in the Southwest.
OKE is holding an open season for the Sun Belt Connector to carry refined products from El Paso, TX to Phoenix, AZ. Announced Sept. 5, the proposed pipeline would provide an outlet from Magellan’s East Houston and Southern Oklahoma terminals to Phoenix Sky Harbor International Airport and the proposed Sun Belt Connector Phoenix Terminal. The open season will run through Nov. 7. OKE is targeting startup as early as mid-2029.
The Phoenix refined products market is supplied primarily via KMI’s SFPP pipeline system, which provides connectivity from California and Texas. However, California’s refining sector faces headwinds and is contracting, leaving Phoenix and the Southwest increasingly exposed to supply volatility. The 440-mile Sun Belt Connector would strengthen Arizona’s link to the deeper refining base in Texas, carrying more gasoline, diesel and jet fuel to the region.
The Sun Belt Connector is competing with a smaller expansion planned by KMI of the SFPP system. KMI held an open season Aug. 18-Sept. 19 to expand the East Line portion of the SFPP system by 3,250 b/d from El Paso to Tucson, AZ. The SFPP expansion could enter operations by April 2026.
The SFPP West Line delivers refined products from Los Angeles into Phoenix and benefits from ~1 MMb/d of refining capacity in Southern California. However, Phillips 66 (PSX) plans to close its Wilmington refinery by 4Q25, reducing capacity to ~0.85 MMb/d (see figure). The closure will leave just four major refiners in Southern California. With no inbound refined products pipelines, California otherwise relies on seaborne imports from Asia and Canada.
Given these trends, the Sun Belt Connector would significantly enhance supply security for Arizona consumers, diversifying away from California and reducing the impact of refinery outages. Over time, the line could also serve as a platform for OKE to expand westward into additional demand centers such as Las Vegas, particularly if refinery attrition in California continues.
The project comes with challenges. By directly competing with the SFPP system, the Sun Belt Connector sets up a battle for the refined products market across Arizona, New Mexico and Nevada. This dynamic underscores a broader trend: as California’s refining base contracts, western US refined product supply chains are poised for restructuring, pitting midstream operators like OKE and KMI in a zero-sum competition for volumes.
ONEOK faced investor skepticism when it announced the $18.8B Magellan acquisition in May 2023. With the Sun Belt Connector, OKE aims to leverage the expanded asset base for growth and prove the skeptics wrong. The path forward poses a risk for KMI as the companies battle for market share. – Garrett Streit Tickers: KMI, OKE, PSX.
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