A pipeline, a bet, and a legal landscape

Old-fashioned capitalism might alleviate California's status as a "fuel island" with a pipeline that would deliver gasoline, diesel and jet fuel to the state from the Midwest and the Gulf Coast.

Pipeline giant Kinder Morgan Inc. and oil major Phillips 66 Company announced the project, known as the Western Gateway Pipeline, which would build new pipelines and use an existing pipeline in Southern California.

If the companies agree on the terms of the joint venture, they will move ahead with a final investment decision on the project, which executives say would be completed in 2029.

That would not solve California's short-term shortage of gasoline, prompted by the U.S. war against Iran that has been aggravated by the state's dependence on foreign countries such as South Korea, India and Singapore - all of which are scrambling to find crude oil they normally get through the Strait of Hormuz, closed due to the military conflict.

Two refinery closures in the past few months --including Phillips 66's Los Angeles facility and Valero Energy Corp.'s Benicia plant -- have eliminated more than 17% of California's refining capacity.

Kinder Morgan CEO Kimberly Dang sees that as an opportunity. "We're going to invest additional capital ... and we're going to get a nice return," she said during the company's quarterly conference call on Wednesday.

The pipeline would also boost gasoline supply in Arizona and could possibly end in Nevada. Both of those states are dependent, at least in part, on California's fuel supply.

The proposed pipeline, which would require new construction in other states, would replace most of the gasoline lost by the two California refinery closures.

"It's a great solution for California and Arizona to access domestic supply as opposed to being reliant on the international market," Dang said.

California's reliance on foreign energy sources has been criticized by critics on the right, who have blamed the state's aggressive regulation of refineries. But advocates of renewable energy warn that gasoline price spikes will dampen voters' enthusiasm to move away from fossil fuels.

Newsom backs the project

Gov. Gavin Newsom applauded the plan, which would require federal government approval but would not need many state permits because the pipeline already exists - pumping fuel from west to east, as opposed to the plan of sending it from east to west instead.

"The Western Gateway project is a promising opportunity to bring additional gasoline supply into the state and bolster resilience," said Anthony Martinez, a Newsom spokesperson.

"At the same time, we'll continue pursuing every solution that reduces the state's dependence on oil -- a volatile product that is tied to the global oil market, including foreign conflicts that raise prices on Americans in all states," he added.

The state is trying to balance its push away from fossil fuels with the need to maintain reliable fuel supplies, which means not chasing away oil companies in the meantime.

The pipeline offers an alternative by transporting gasoline from as far east as Missouri, reducing California's dependence on fuel from overseas as well as refineries in the state.

A bet on gasoline

But the energy companies are making their own gamble, that California won't be able to wean itself off gasoline as quickly as state officials hope.

Severin Borenstein, a professor of business administration and public policy at UC Berkeley, said Kinder Morgan and Phillips 66 are calculating that gasoline prices will stay high - and needed.

"It is a bet that California is not going to get off gasoline anytime soon," he said. "They are betting that California is going to need imports and that they will be able to do it more cost-effectively."

The pipeline is an expensive project, and Kinder Morgan officials cautioned that the deal is dependent on reaching a joint venture agreement with Phillips 66 before making a final investment decision.

Jason Bennett, department chair of Baker Botts LLP's global projects practice and co-head of the firm's energy sector leadership, said state consumers would benefit from being connected to gasoline sources in the United States.

"California needs more access to sources of refined products, so this project, if permitted and built, would link California to more domestic sources of those refined products," he wrote in an email.

Myles P. Culhane, a shareholder with Greenberg Traurig LLP in Sacramento and a former official at oil producer Occidental Petroleum Corp., agreed.

"Projects such as the proposed Western Gateway Pipeline will remain critical components to California's energy transition efforts and its economy -- helping to ensure that consumers living in and companies operating in California have access to affordable energy options," he said.

But it's not a sure thing. Michael Mische, a professor at USC Marshall School of Business, predicted "a litany of lawsuits" challenging the pipeline project if the companies agree to move forward.

Any relief is years away.

"For the next three years, I think this is not going to have any effect on our prices," Borenstein said. "After that, when it opens, I think it would."

How young is too young?

Sue Meng, a partner and managing director at the Duquesne Family Office, raised eyebrows at the Berkeley Forum on M&A and the Boardroom on Thursday after mentioning that some of her colleagues at the private investment firm run by Stanley Druckenmiller say they "would never invest in an AI company with anybody over the age of 25."

But some investors look even younger.

While investors once sought out smart college students and backed them, others say "that's too late. I'm going to find high schoolers, or high school dropouts."

Meng questioned that approach, saying that a teenager with a great idea won't necessarily make a good founder. "I'm not sure the business model is totally obvious," she said.

Claire Hart, former chief operating officer and chief legal officer at AI startup Groq, could relate, because that company's founder was a high school dropout.

She and another executive joked that they felt like they "failed by getting advanced degrees" while younger leaders celebrated their career paths.