Capacity recontracting continued to weigh on Boardwalk Pipeline Partners LP revenues during the second quarter, but “every year, we seem to work out a little bit more of the problem,” CEO Stan Horton told analysts during an earnings conference call.

Flattened basis differentials have been challenging Boardwalk for a while. Earlier this year, Horton told analysts that the combination of lower rates on contract renewals and the remarketing of turned back capacity would result in an annual revenue reduction of about $40 million (see NGI, Feb. 18).

During the second quarter Boardwalk revenue was down about $10 million from contract renewals, CFO Jamie Buskill said, adding that the number is in line with the earlier $40 million annual estimate.

“I don’t want to say the worst is behind us,” Horton said last week. “But on the recontracting…the average length of our contract has been about five years. Of course, as you move through and recontract something, hopefully, when that renewal comes up, there’ll be no further deterioration. So every year, we seem to work out a little bit more of the problem. But we have a few years to go…Now that being said, we are very hopeful that as demand continues to increase, that some of these basis differentials will continue to get better. So we’ll just have to see what the market gives us.”

But Boardwalk isn’t just waiting for the market to change. Horton also talked up projects the company has in the pipeline, specifically its Northeast-to-Gulf Coast natural gas liquids (NGL) pipeline project with Williams called Bluegrass (see NGI, May 6). “…[T]he Bluegrass Pipeline is designed to transport Marcellus and Utica mixed NGL production to growing petrochemical markets in the U.S. Gulf Coast,” Horton said (see related story). “The pipeline is proposed to be connected to a new NGL fractionation facility named the Moss Lake fractionation, which would be constructed at our Sulphur [LA] Hub in the Lake Charles area, as well as new NGL storage facilities.”

Loews Corp. has agreed to fund 90% of the preconstruction costs of Bluegrass. “We estimate that the preconstruction costs to be invested under this arrangement will be approximately $150 million, of which approximately $110 million is expected to be funded in 2013. So in 2013, we estimate that Boardwalk’s capital expenditures for Bluegrass will total approximately $11 million,” Buskill said.

Horton said Boardwalk is also exploring development of a new liquid propane gas (LPG) export terminal that would be named the Moss Lake LPG terminal. “At this stage, together with Williams, we are meeting with customers about the project and anticipate an open season for the project later this year.” Not many details about the potential LPG terminal are available yet. “Let me just say that the project is in the preliminary developmental stage, and all aspects of the project are being looked at and secured. And once we get the customer commitments, we will be in a position to move forward with the terminal, subject to both boards approving it.”

This and the terminal projects of others, combined with gas demand growth among power generators make are encouraging signs for recontracting pipeline capacity, Horton said. “…[T]hat’s a whole lot of market demand and a whole lot more volumes that are going to be moving across these interstate systems. And it is our hope and our belief that’s going to help basis differentials improve from the levels that they are today. So I’m hopeful that the worst is behind us. But you can’t guarantee what the market’s going to do.”

During the second quarter, Boardwalk had operating revenues of $288.7 million, a 5% increase from $275.8 million during the year-ago quarter. Distributable cash flow was $148.7 million, up 15% from $129.6 million during the year-ago quarter.