UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C.
20549


________________




Form 10-Q





(Mark
One)





R
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934For
      the quarterly period ended June 30, 2008OR£
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF
              THE
      SECURITIES EXCHANGE ACT OF 1934For the transition period
      from                                                                         to





Commission
File Number 1-2745




________________




Southern
Natural Gas Company


(Exact
Name of Registrant as Specified in Its Charter)





Delaware
            63-0196650(State
      or Other Jurisdiction
            (I.R.S.
      Employerof
      Incorporation or Organization)
            Identification
      No.)El Paso
      Building1001
      Louisiana StreetHouston,
      Texas
            77002(Address
      of Principal Executive Offices)
            (Zip
      Code)





Telephone
Number: (713) 420-2600





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes R No £





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated
      filero
              Accelerated
      filer o
              Non-accelerated
      filer þ
              Smaller
      reporting company o(Do
      not check if a smaller reporting company)





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).  Yes o  No þ








SOUTHERN
NATURAL GAS COMPANY





TABLE
OF CONTENTS





Caption
            PagePART
      I — Financial InformationItem  1.
            Financial
      Statements
            1Item  2.
            Management’s
      Discussion and Analysis of Financial Condition and  Results of
      Operations
            9Item  3.
            Quantitative
      and Qualitative Disclosures About Market  Risk
            13Item  4.
            Controls
      and Procedures
            13PART
      II — Other InformationItem  1.
            Legal
      Proceedings
            14Item  1A.
            Risk
      Factors
            14Item  2.
            Unregistered
      Sales of Equity  Securities and Use of Proceeds
            14Item  3.
            Defaults
      Upon Senior Securities
            14Item  4.
            Submission
      of Matters to a Vote of Security Holders
            14Item  5.
            Other
      Information
            14Item  6.
            Exhibits
            14Signatures
            15


____________





Below is
a list of terms that are common to our industry and used throughout this
document:





/d
            = per day
            BBtu
            = billion
      British thermal units





When we
refer to cubic feet measurements, all measurements are at a pressure of
14.73 pounds per square inch.





When we
refer to “us,” “we,” “our,” or “ours,” we are describing Southern Natural Gas
Company and/or our subsidiaries.








i


PART I —
FINANCIAL INFORMATION





Item 1. Financial
Statements





SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(In
millions)


(Unaudited)





Quarter
      Ended
            
            
            Six
      Months EndedJune
      30,
            
            
            June
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      revenues
            
            $
            125
            
            
            $
            114
            
            
            $
            288
            
            
            $
            234Operating
      expensesOperation
      and maintenance
            
            
            44
            
            
            
            38
            
            
            
            85
            
            
            
            74Depreciation
      and amortization
            
            
            13
            
            
            
            13
            
            
            
            27
            
            
            
            25Taxes,
      other than income taxes
            
            
            7
            
            
            
            8
            
            
            
            14
            
            
            
            1364
            
            
            
            59
            
            
            
            126
            
            
            
            112Operating
      income
            
            
            61
            
            
            
            55
            
            
            
            162
            
            
            
            122Earnings
      from unconsolidated affiliates
            
            
            4
            
            
            
            25
            
            
            
            8
            
            
            
            51Other
      income, net
            
            
            3
            
            
            
            4
            
            
            
            7
            
            
            
            10Interest
      and debt expense
            
            
            (19
            )
            
            
            (22
            )
            
            
            (39
            )
            
            
            (44
            )Affiliated
      interest income, net
            
            
            4
            
            
            
            5
            
            
            
            10
            
            
            
            9Income
      before income taxes
            
            
            53
            
            
            
            67
            
            
            
            148
            
            
            
            148Income
      taxes
            
            
            —
            
            
            
            20
            
            
            
            —
            
            
            
            44Income
      from continuing operations
            
            
            53
            
            
            
            47
            
            
            
            148
            
            
            
            104Discontinued
      operations, net of income taxes
            
            
            —
            
            
            
            3
            
            
            
            —
            
            
            
            9Net
      income
            
            
            53
            
            
            
            50
            
            
            
            148
            
            
            
            113Other
      comprehensive income
            
            
            —
            
            
            
            1
            
            
            
            —
            
            
            
            1Comprehensive
      income
            
            $
            53
            
            
            $
            51
            
            
            $
            148
            
            
            $
            114





See
accompanying notes.


1


SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
millions)


(Unaudited)





June
      30,
            
            
            December
      31,2008
            
            
            2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            —
            
            
            $
            —Accounts
      and notes receivableCustomer
            
            
            6
            
            
            
            5Affiliates
            
            
            122
            
            
            
            89Other
            
            
            3
            
            
            
            1Materials
      and supplies
            
            
            12
            
            
            
            12Other
            
            
            5
            
            
            
            11Total
      current assets
            
            
            148
            
            
            
            118Property,
      plant and equipment, at cost
            
            
            3,552
            
            
            
            3,448Less
      accumulated depreciation and amortization
            
            
            1,344
            
            
            
            1,298Total
      property, plant and equipment, net
            
            
            2,208
            
            
            
            2,150Other
      assetsInvestments
      in unconsolidated affiliates
            
            
            83
            
            
            
            84Note
      receivable from affiliate
            
            
            117
            
            
            
            378Other
            
            
            87
            
            
            
            73287
            
            
            
            535Total
      assets
            
            $
            2,643
            
            
            $
            2,803LIABILITIES
      AND PARTNERS’ CAPITALCurrent
      liabilitiesAccounts
      payableTrade
            
            $
            14
            
            
            $
            29Affiliates
            
            
            11
            
            
            
            3Other
            
            
            16
            
            
            
            16Current
      maturities of long-term debt
            
            
            34
            
            
            
            34Taxes
      payable
            
            
            13
            
            
            
            11Accrued
      interest
            
            
            19
            
            
            
            24Other
            
            
            7
            
            
            
            10Total
      current liabilities
            
            
            114
            
            
            
            127Long-term
      debt, less current maturities
            
            
            909
            
            
            
            1,098Other
      liabilities
            
            
            41
            
            
            
            36Commitments
      and contingencies (Note 5)Partners’
      capital
            
            
            1,579
            
            
            
            1,542Total
      liabilities and partners’ capital
            
            $
            2,643
            
            
            $
            2,803





See
accompanying notes.


2


SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
millions)


(Unaudited)








Six
      Months EndedJune
      30,2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            148
            
            
            $
            113Less
      income from discontinued operations, net of income taxes
            
            
            —
            
            
            
            9Income
      from continuing operations
            
            
            148
            
            
            
            104Adjustments
      to reconcile net income to net cash from operating
    activitiesDepreciation
      and amortization
            
            
            27
            
            
            
            25Deferred
      income taxes
            
            
            —
            
            
            
            13Earnings
      from unconsolidated affiliates, adjusted for cash
      distributions
            
            
            1
            
            
            
            25Other
      non-cash income items
            
            
            (4
            )
            
            
            (3
            )Asset
      and liability changes
            
            
            18
            
            
            
            40Cash
      provided by continuing activities
            
            
            190
            
            
            
            204Cash
      provided by discontinued activities
            
            
            —
            
            
            
            14Net
      cash provided by operating activities
            
            
            190
            
            
            
            218Cash
      flows from investing activitiesAdditions
      to property, plant and equipment
            
            
            (83
            )
            
            
            (123
            )Net
      change in note receivable from affiliate
            
            
            206
            
            
            
            (105
            )Cash
      provided by (used) in continuing activities
            
            
            123
            
            
            
            (228
            )Cash
      used in discontinued activities
            
            
            —
            
            
            
            (14
            )Net
      cash provided by (used) in investing activities
            
            
            123
            
            
            
            (242
            )Cash
      flows from financing activitiesNet
      proceeds from issuance of long-term debt
            
            
            —
            
            
            
            494Payment
      to retire long-term debt
            
            
            (202
            )
            
            
            (470
            )Distributions
      to partners
            
            
            (111
            )
            
            
            —Net
      cash provided by (used in) financing activities
            
            
            (313
            )
            
            
            24Net
      change in cash and cash equivalents
            
            
            —
            
            
            
            —Cash
      and cash equivalentsBeginning
      of period
            
            
            —
            
            
            
            —End
      of period
            
            $
            —
            
            
            $
            —





See
accompanying notes.


3


SOUTHERN
NATURAL GAS COMPANY





NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(Unaudited)





1. Basis
of Presentation and Significant Accounting Policies





Basis of
Presentation





We
prepared this Quarterly Report on Form 10-Q under the rules and regulations of
the United States Securities and Exchange Commission (SEC). Because this is an
interim period filing presented using a condensed format, it does not include
all of the disclosures required by U.S. generally accepted accounting
principles. You should read this Quarterly Report on Form 10-Q along with our
2007 Annual Report on Form 10-K, which contains a summary of our significant
accounting policies and other disclosures. The financial statements as of June
30, 2008, and for the quarters and six months ended June 30, 2008 and 2007, are
unaudited. We derived the condensed consolidated balance sheet as of
December 31, 2007, from the audited balance sheet filed in our 2007
Annual Report on Form 10-K. In our opinion, we have made all
adjustments, which are of a normal recurring nature, to fairly present our
interim period results. Due to the seasonal nature of our business, information
for interim periods may not be indicative of our operating results for the
entire year.





Effective
November 1, 2007, we converted our legal structure into a general partnership in
contemplation of El Paso Corporation’s (El Paso) formation of a new master
limited partnership, El Paso Pipeline Partners, L.P. (MLP). In conjunction with
the formation of El Paso’s MLP in November 2007, we distributed our 50 percent
interest in Citrus Corp. (Citrus) and our wholly owned subsidiaries, Southern
LNG, Inc. (SLNG) and Elba Express Company, LLC (Elba Express) to El Paso. We
have reflected the SLNG and Elba Express operations as discontinued operations
in our financial statements for periods prior to their
distribution.





Significant Accounting
Policies





The
information below provides an update of our significant accounting policies and
accounting pronouncements issued but not yet adopted as discussed in our 2007
Annual Report on Form 10-K.





Fair Value Measurements. On
January 1, 2008, we adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 157,Fair Value Measurements, for our financial assets and liabilities. The
adoption of the standard did not have an impact on our financial statements. We
elected to defer the adoption of SFAS No. 157 for our non-financial assets and
liabilities until January 1, 2009. We are currently evaluating the impact, if
any, that the deferred provisions of this standard will have on our financial
statements.





Measurement Date of Postretirement
Benefits. Effective January 1, 2008, we adopted the measurement date
provisions of SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and
Other Postretirement Plans — an Amendment of FASB Statements No. 87, 88, 106, and
132(R)and changed the measurement date of our postretirement benefit
plan from September 30 to December 31. The adoption of the measurement date
provisions of this standard did not have a material impact on our financial
statements.


























4





2.
Divestitures





In
November 2007, we distributed our wholly owned subsidiaries, SLNG and Elba
Express, to El Paso. We have reflected these operations as discontinued
operations in our financial statements for periods prior to their distribution.
We also distributed our investment in Citrus to El Paso which is not reflected
in discontinued operations. The table below summarizes the operating results of
our discontinued operations for the periods ended June 30, 2007.




Quarter
      Ended
            
            
            Six
      Months EndedJune 30, 2007
            
            
            June 30, 2007(In
      millions)Revenues
            
            $
            17
            
            
            $
            34Costs
      and expenses
            
            
            (14
            )
            
            
            (21
            )Other
      income, net
            
            
            1
            
            
            
            1Interest
      and debt expense
            
            
            1
            
            
            
            1Income
      before income taxes
            
            
            5
            
            
            
            15Income
      taxes
            
            
            2
            
            
            
            6Income
      from discontinued operations, net of income taxes
            
            $
            3
            
            
            $
            9





3. Debt





In June
2008, we paid $202 million, including premiums, to repurchase approximately $147
million of our 7.35% notes due 2031 and $42 million of our 8.0% notes due 2032
as part of our previously announced debt repurchases. We utilized our note
receivable from El Paso under its cash management program for these
repurchases.





4. Income
Taxes





Effective
November 1, 2007, we converted our legal structure into a general partnership
and no longer pay income taxes.





5. Commitments
and Contingencies





Legal
Proceedings





Gas Measurement
Cases.  We and a number of our affiliates were named defendants
in actions that generally allege mismeasurement of natural gas volumes and/or
heating content resulting in the underpayment of royalties. These cases were
filed in 1997 by an individual under the False Claims Act and have been
consolidated for pretrial purposes (In re: Natural Gas Royalties Qui Tam
Litigation, U.S. District Court for the District of Wyoming). These
complaints allege an industry-wide conspiracy to underreport the heating value
as well as the volumes of the natural gas produced from federal and Native
American lands.  In October 2006, the U.S. District Judge issued an
order dismissing all claims against all defendants.  An appeal has
been filed.





In addition to the
above proceedings, we and our subsidiaries and affiliates are named defendants
in numerous lawsuits and governmental proceedings that arise in the ordinary
course of our business. For each of these matters, we evaluate the merits of the
case, our exposure to the matter, possible legal or settlement strategies and
the likelihood of an unfavorable outcome. If we determine that an unfavorable
outcome is probable and can be estimated, we establish the necessary accruals.
While the outcome of these matters, including those discussed above, cannot be
predicted with certainty, and there are still uncertainties related to the costs
we may incur, based upon our evaluation and experience to date, we believe we
have established appropriate reserves for these matters. It is possible,
however, that new information or future developments could require us to
reassess our potential exposure related to these matters and adjust our accruals
accordingly, and these adjustments could be material. At June 30, 2008, we
accrued approximately $2 million for our outstanding legal matters.













5





Environmental
Matters





We are
subject to federal, state and local laws and regulations governing environmental
quality and pollution control. These laws and regulations require us to remove
or remedy the effect on the environment of the disposal or release of specified
substances at current and former operating sites. At June 30, 2008, we had
accrued approximately $1 million for expected remediation costs and
associated onsite, offsite and groundwater technical studies. Our accrual
represents a combination of two estimation methodologies. First, where the most
likely outcome can be reasonably estimated, that cost has been accrued. Second,
where the most likely outcome cannot be estimated, a range of costs is
established and if no one amount in that range is more likely than any other,
the lower end of the expected range has been accrued.





It is
possible that new information or future developments could require us to
reassess our potential exposure related to environmental matters. We may incur
significant costs and liabilities in order to comply with existing environmental
laws and regulations. It is also possible that other developments, such as
increasingly strict environmental laws, regulations and orders of regulatory
agencies, as well as claims for damages to property and the environment or
injuries to employees and other persons resulting from our current or past
operations, could result in substantial costs and liabilities in the future. As
this information becomes available, or other relevant developments occur, we
will adjust our accrual amounts accordingly. While there are still uncertainties
related to the ultimate costs we may incur, based upon our evaluation and
experience to date, we believe our reserves are adequate.





Regulatory
Matters





Notice of Inquiry on Pipeline Fuel
Retention Policies. In September 2007, the Federal Energy Regulatory
Commission (FERC) issued a Notice of Inquiry regarding its policy about the
in-kind recovery of fuel and lost and unaccounted for gas by natural gas
pipeline companies. Under current policy, pipeline companies have options for
recovering these costs. For some companies, the tariff states the recovery of a
fixed percentage as a non-negotiable fee-in-kind retained from the volumes
tendered for shipment by each shipper. There is also a tracker approach, where
the pipeline company’s tariff provides for prospective adjustments to the fuel
retention rates from time-to-time, but does not include a mechanism to
allow the company to reconcile past over or under-recoveries of fuel. Finally,
some pipeline companies’ tariffs provide for a tracker with a true-up approach,
where provisions in the companies’ tariff allow for periodic adjustments to the
fuel retention rates, and also provide for a true-up of past over and
under-recoveries of fuel and lost and unaccounted for gas. In this proceeding,
the FERC is seeking comments on whether it should change its current policy and
prescribe a uniform method for all pipeline companies to use in recovering these
costs. Pursuant to our most recent rate case settlement, we utilize a variation
of these methodologies in which we share with our customers past over-recoveries
of fuel and lost and unaccounted for gas but absorb past under-collections of
fuel and lost and unaccounted for gas. At this time, we do not know what impact,
if any, this proceeding may ultimately have on us.





Notice of Proposed
Rulemaking. In October 2007, the MMS issued a Notice of Proposed
Rulemaking for Oil and Gas and Sulphur Operations in the Outer Continental Shelf
(OCS) - Pipelines and Pipeline Rights-of-Way. If adopted, the proposed rules
would substantially revise MMS OCS pipeline and rights-of-way regulations. The
proposed rules would have the effect of: (1) increasing the financial
obligations of entities, like us, which have pipelines and pipeline
rights-of-way in the OCS; (2) increasing the regulatory requirements imposed on
the operation and maintenance of existing pipelines in the OCS; and (3)
increasing the requirements and preconditions for obtaining new rights-of-way in
the OCS.





Greenhouse Gas
Emissions.  In July 2008, the U.S. Environmental Protection
Agency (EPA) requested public comments on the potential regulation of greenhouse
gases (GHGs) under the Clean Air Act. Some of the regulatory alternatives
identified by the EPA in its request for comments, if eventually promulgated as
final rules, would likely impact our operations and financial results. It is
uncertain whether the EPA will proceed with adopting final rules or whether the
regulation of the GHGs will be addressed in federal and state legislation. Since
it is uncertain what, if any, regulatory or legislative alternatives may be
adopted, it is not possible at this time to determine whether and how such laws
or regulations could impact our operations and financial results and whether
those impacts will be material to our financial statements.








6


Other
Matters





Calpine Bankruptcy. In 2007,
Calpine Corporation (Calpine) rejected its firm transportation contract with us
which ran through 2019. Although our original undiscounted claim for this
contract rejection was approximately  $75 million, we entered into a
settlement with Calpine under its plan of reorganization filed in June 2007 in
connection with its bankruptcy proceeding. During the first six months of 2008,
we recognized revenue of $35 million related to distributions received
under Calpine’s approved plan of reorganization.





Guarantees. We are or have
been involved in various ownership and other contractual arrangements that
sometimes require us to provide additional financial support that results in the
issuance of performance guarantees that are not recorded in our financial
statements. As of June 30, 2008, we have performance guarantees related to
contracts held by SLNG and Elba Express, entities formerly owned by us, with a
maximum exposure of $725 million.





6. Investments
in Unconsolidated Affiliates and Transactions with Affiliates





Investments in Unconsolidated
Affiliates





We have a
50 percent ownership interest in Bear Creek Storage Company (Bear Creek), a
joint venture with Tennessee Gas Storage Company, our affiliate. Prior to its
distribution to El Paso in November 2007, we had a 50 percent ownership
interest in Citrus. Summarized income statement information of our proportionate
share of the income of these investments for the periods ended June 30 is
as follows:





Quarter
      Ended
            
            
            Six
      Months EndedJune 30,
            
            
            June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions)Operating
      results data:Operating
      revenues
            
            $
            5
            
            
            $
            69
            
            
            $
            11
            
            
            $
            129Operating
      expenses
            
            
            2
            
            
            
            28
            
            
            
            4
            
            
            
            56Income
      from continuing operations and net income
            
            
            4
            
            
            
            26
            (1)
            
            
            8
            
            
            
            50
            (1)


____________


(1)
            The
      difference between our proportionate share of our equity investments’ net
      income and our earnings from unconsolidated affiliates in 2007 was due
      primarily to the excess purchase price amortization related to Citrus and
      differences between the estimated and actual equity earnings on our
      investments.





For the
six months ended June 30, 2008, we received $9 million in dividends from Bear
Creek. For the six months ended June 30, 2007, we received $76 million in
dividends from Citrus.





Transactions with
Affiliates





Distributions.We are
required to make distributions of available cash as defined in our partnership
agreement on a quarterly basis to our partners. During the first six months of
2008, we paid cash distributions of approximately $111 million to our partners.
In addition, in July 2008 we paid a cash distribution to our partners of
approximately $48 million.





Cash Management Program.We
participate in El Paso’s cash management program which matches short-term cash
surpluses and needs of participating affiliates, thus minimizing total
borrowings from outside sources. El Paso uses the cash management program to
settle intercompany transactions between participating affiliates. We have
historically advanced cash to El Paso in exchange for an affiliated note
receivable. At June 30, 2008 and December 31, 2007, we had a note
receivable from El Paso of $219 million and $425 million. We
classified $102 million and $47 million of this receivable as current on
our balance sheets at June 30, 2008 and December 31, 2007, based on the net
amount we anticipated using in the next twelve months considering available cash
sources and needs. The interest rate on this note at June 30, 2008 and December
31, 2007 was 3.7% and 6.5%.





Income Taxes. During the
first quarter of 2007, El Paso billed us $20 million through intercompany
accounts for certain tax attributes previously reflected as deferred income
taxes in our financial statements.





7


Accounts Receivable Sales Program.We sell certain accounts receivable to a qualifying special purpose
entity (QSPE) and reflect our subordinated interest in these receivables as
accounts receivable — affiliate on our balance sheets. We earn a fee for
servicing the receivables and performing all administrative duties for the QSPE.
At June 30, 2008 and December 31, 2007, our subordinated beneficial
interest in the receivables sold was $19 million and $30 million. The fair value
of the fees earned was immaterial to our financial statements for the quarters
and six months ended June 30, 2008 and 2007.





Affiliate Revenues and
Expenses.  We enter into transactions with our affiliates
within the ordinary course of business. We do not have employees. Following our
reorganization in November 2007, our former employees continue to provide
services to us through an affiliated service company owned by our general
partner, El Paso. For a further discussion of our affiliated transactions, see
our 2007 Annual Report on Form 10-K. The following table shows revenues and
charges from our affiliates for the periods ended June 30:





Quarter
      Ended
            
            
            Six
      Months EndedJune 30,
            
            
            June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions)Revenues
      from affiliates
            
            $
            2
            
            
            $
            1
            
            
            $
            3
            
            
            $
            3Operating
      expenses from affiliates
            
            
            27
            
            
            
            18
            
            
            
            54
            
            
            
            35








8


Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations





The
information contained in Item 2 updates, and should be read in conjunction with,
the information disclosed in our 2007 Annual Report on Form 10-K, and our
condensed consolidated financial statements and the accompanying footnotes
presented in Item 1 of this Quarterly Report on
Form 10-Q.





Overview





In
November 2007, we distributed our 50 percent interest in Citrus and our wholly
owned subsidiaries, SLNG and Elba Express, to El Paso. We have reflected the
SLNG and Elba Express operations as discontinued operations in our financial
statements for periods prior to their distribution. For a further discussion of
our discontinued operations, see Item 1, Financial Statements, Note 2. In
addition, effective  November 1, 2007, we converted our legal
structure into a general partnership, which is not subject to income
taxes.





Updates of Growth Projects.
We expect to spend approximately $628million on
contracted organic growth projects from 2008 through 2012. Of this amount, we
anticipate spending $72 million in
2008 on contracted expansion projects consisting of the following:





·
            CypressPhase II. In May 2008,
      the Cypress Phase II project was placed into service with a total cost of
      approximately $20 million.





·
            CypressPhase III. The Cypress
      Phase III expansion project has an estimated cost of $86 million. A FERC
      certificate has been issued for the project. Construction of Cypress Phase
      III is at the option of BG LNG Services. If BG LNG Services elects to have
      us build Cypress Phase III, then construction is expected to commence in
      2010 with an in-service date of
  January 2011.





·
            South System III. The
      South System III expansion project will be completed in three phases.
      During the second quarter of 2008, we changed the scope of this project at
      the request of the customer which increased the total estimated cost to
      $352 million. We anticipate filing an application with the FERC during the
      fourth quarter of 2008 for certificate authorization to construct and
      operate these facilities. The project has estimated in-service dates of
      January 2011 for Phase I, June 2011 for Phase II and
      June 2012 for Phase III.





·
            Southeast Supply
      Header. We own an undivided interest in the northern portion of the
      Southeast Supply Header project jointly owned by Spectra Energy
      Corp. (Spectra) and CenterPoint Energy. The construction of this project
      is managed by Spectra and our share of the estimated cost for this project
      is $241 million. This project is expected to be completed in two phases.
      The FERC issued an order approving the first phase in September 2007.
      The estimated in-service dates are September 2008 for Phase I
      and June 2011 for Phase II.





For
a further discussion of our various regulatory, development and operational
risks, see our 2007 Annual Report on Form 10-K.








9


Results
of Operations





Our
management uses earnings before interest expense and income taxes (EBIT) as a
measure to assess the operating results and effectiveness of our business, which
consists of consolidated operations as well as investments in unconsolidated
affiliates. We believe EBIT is useful to investors because it allows them to
evaluate more effectively our operating performance using the same performance
measure analyzed internally by our management. We define EBIT as net income
adjusted for (i) items that do not impact our income from continuing operations,
such as discontinued operations, (ii) income taxes, (iii) interest and debt
expense and (iv) affiliated interest income. We exclude interest and debt
expense from this measure so that investors may evaluate our operating results
without regard to our financing methods. EBIT may not be comparable to
measurements used by other companies. Additionally, EBIT should be considered in
conjunction with net income and other performance measures such as operating
income and operating cash flows. Below is a reconciliation of our EBIT to net
income, our throughput volumes and an analysis and discussion of our results for
the quarter and six months ended June 30, 2008 compared to the same periods in
2007.





Operating
Results:


Quarter
      Ended
            
            
            Six
      Months EndedJune 30,
            
            
            June 30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions, except for volumes)Operating
      revenues
            
            $
            125
            
            
            $
            114
            
            
            $
            288
            
            
            $
            234Operating
      expenses
            
            
            (64
            )
            
            
            (59
            )
            
            
            (126
            )
            
            
            (112
            )Operating
      income
            
            
            61
            
            
            
            55
            
            
            
            162
            
            
            
            122Earnings
      from unconsolidated affiliates
            
            
            4
            
            
            
            25
            
            
            
            8
            
            
            
            51Other
      income, net
            
            
            3
            
            
            
            4
            
            
            
            7
            
            
            
            10EBIT
            
            
            68
            
            
            
            84
            
            
            
            177
            
            
            
            183Interest
      and debt expense
            
            
            (19
            )
            
            
            (22
            )
            
            
            (39
            )
            
            
            (44
            )Affiliated
      interest income, net
            
            
            4
            
            
            
            5
            
            
            
            10
            
            
            
            9Income
      taxes
            
            
            —
            
            
            
            (20
            )
            
            
            —
            
            
            
            (44
            )Income
      from continuing operations
            
            
            53
            
            
            
            47
            
            
            
            148
            
            
            
            104Discontinued
      operations, net of income taxes
            
            
            —
            
            
            
            3
            
            
            
            —
            
            
            
            9Net
      income
            
            $
            53
            
            
            $
            50
            
            
            $
            148
            
            
            $
            113Throughput
      volumes (BBtu/d)(1)
            
            
            2,163
            
            
            
            3,099
            
            
            
            2,393
            
            
            
            3,162


____________


(1)
            Throughput volumes include 979
      BBtu/d and 933 BBtu/d for the quarter and six months ended June 30, 2007
      related to billable transportation throughput volumes for storage
      injection and volumes associated with our proportionate share of our 50
      percent equity interest in Citrus. In November 2007, we distributed our
      ownership interest in Citrus to El
Paso.





EBIT
Analysis:


Quarter Ended June 30,
      2008
            
            
            Six Months Ended June 30,
      2008Revenue
            
            
            Expense
            
            
            Other
            
            
            EBIT
              Impact
            
            
            Revenue
            
            
            Expense
            
            
            Other
            
            
            EBIT
              ImpactFavorable/(Unfavorable)
              (In
      millions)Expansions
            
            $
            4
            
            
            $
            (3
            )
            
            $
            —
            
            
            $
            1
            
            
            $
            13
            
            
            $
            (4
            )
            
            $
            (2
            )
            
            $
            7Gas
      not used in operations and other natural gas sales
            
            
            2
            
            
            
            (1
            )
            
            
            —
            
            
            
            1
            
            
            
            4
            
            
            
            (6
            )
            
            
            —
            
            
            
            (2
            )Calpine
      bankruptcy settlement
            
            
            6
            
            
            
            —
            
            
            
            —
            
            
            
            6
            
            
            
            35
            
            
            
            —
            
            
            
            —
            
            
            
            35Earnings
      from Citrus
            
            
            —
            
            
            
            —
            
            
            
            (22
            )
            
            
            (22
            )
            
            
            —
            
            
            
            —
            
            
            
            (44
            )
            
            
            (44
            )Other(1)
            
            
            (1
            )
            
            
            (1
            )
            
            
            —
            
            
            
            (2
            )
            
            
            2
            
            
            
            (4
            )
            
            
            —
            
            
            
            (2
            )Total
      impact on EBIT
            
            $
            11
            
            
            $
            (5
            )
            
            $
            (22
            )
            
            $
            (16
            )
            
            $
            54
            
            
            $
            (14
            )
            
            $
            (46
            )
            
            $
            (6
            )


____________


(1)Consists of individually insignificant
items.





Expansions.  In May
2007, we placed Phase I of our Cypress project in service, and in May 2008 we
placed  Phase II in service. The construction of Phase I of the
Southeast Supply Header is currently underway and is expected to be placed in
service in September 2008. Additionally, we continue to make progress on various
projects further discussed in Updates of Growth Projects
above.




10


Gas Not Used in Operations and Other
Natural Gas Sales.  The financial impact of operational gas,
net of gas used in operations, is based on the amount of natural gas we are
allowed to retain and dispose of according to our tariff, relative to the
amounts of natural gas we use for operating purposes and the price of natural
gas. Gas not used in operations results in revenues to us, which are impacted by
volumes and prices during a given period.  During the six months ended
June 30, 2008, our EBIT was lower primarily due to an increase in volumes used
in our operations relative to amounts we retained.





Calpine Bankruptcy
Settlement. During the first six months of 2008, we recognized
revenue of $35 million related to distributions received under Calpine’s
approved plan of reorganization.





Earnings from
Citrus.  In November 2007, in conjunction with the formation of
El Paso’s MLP, we distributed our 50 percent interest in Citrus to El Paso. As a
result, we no longer record equity earnings from Citrus.





Interest
and Debt Expense





Interest
and debt expense for the quarter and six months ended June 30, 2008, was $3
million and $5 million lower than the same periods in 2007 primarily due to
lower average outstanding debt balances.





Income
Taxes





Effective
November 1, 2007, we no longer pay income taxes as a result of our conversion to
a partnership. For a further discussion of these transactions, see our 2007
Annual Report on Form 10-K. Our effective tax rates of 30 percent for the
quarter and six months ended June 30, 2007 were lower than the statutory rate of
35 percent primarily due to the tax effect of earnings from unconsolidated
affiliates where we anticipate receiving dividends that qualify for a dividends
received deduction, partially offset by the effect of state income
taxes.





11


Liquidity
and Capital Expenditures





Liquidity
Overview.  Our primary sources of liquidity are cash flows from
operating activities and El Paso’s cash management program. Our primary uses of
cash are for working capital, capital expenditures, debt service requirements,
and for required distributions to our partners. We are required to make
distributions of available cash as defined in our partnership agreement on a
quarterly basis to our partners. We have historically advanced cash to El Paso
under its cash management program, which we reflect in investing activities in
our statement of cash flows. At June 30, 2008, we had a note receivable from El
Paso of approximately $219 million of which approximately $102 million was
classified as current based on the net amount we anticipate using in the next
twelve months considering available cash sources and needs. See Item 1,
Financial Statements, Note 6, for a further discussion of El Paso’s cash
management program. We believe that cash flows from operating activities
combined with amounts available to us under El Paso’s cash management program or
contributions from our partners, will be adequate to meet our capital
requirements and our existing operating needs.





2008
Cash Flow Activities.Our cash flows for the six months ended June 30
were as follows:





2008
            
            
            2007(In
      millions)Cash
      flows provided by continuing operating activities
            
            $
            190
            
            
            $
            204Cash
      flows provided by (used in) continuing investing
activities
            
            
            123
            
            
            
            (228
            )Cash
      flows provided by (used in) continuing financing
activities
            
            
            (313
            )
            
            
            24





In 2008,
operating cash flow decreased compared with 2007 primarily due to the
distribution of Citrus to El Paso in conjunction with the formation of El Paso’s
MLP. As a result, we no longer receive distributions from Citrus. Partially
offsetting this decrease were the proceeds received from the Calpine bankruptcy
settlement and the impact of expansion projects in 2008. We used our operating
cash flow to fund capital maintenance projects and make distributions to our
partners. We used amounts available under the cash management program to fund
our growth projects. The discussions below provide further analysis of our cash
flow activities.





·
            Capital
      Expenditures.  Our cash
      capital expenditures for the six months ended June 30, 2008, and our
      estimates of capital expenditures for the remainder of this year to expand
      and maintain our system are listed below.


Six
      Months Ended
            
            
            2008June 30, 2008
            
            
            Remaining
            
            
            Total(In
      millions)Maintenance
            
            $
            23
            
            
            $
            38
            
            
            $
            61Expansions
            
            
            60
            
            
            
            12
            
            
            
            72$
            83
            
            
            $
            50
            
            
            $
            133





For the
six months ended June 30, 2008, our capital expenditures primarily included
amounts spent on the Southeast Supply Header expansion project.





·
            Cash Distributions.We
      are required to make distributions of available cash as defined in our
      partnership agreement on a quarterly basis to our partners. During the
      first six months of 2008, we paid cash distributions of approximately $111
      million to our partners. In addition, in July 2008 we paid a cash
      distribution to our partners of approximately $48
  million.





·
            Debt.In June 2008, we
      paid $202 million, including premiums, to repurchase approximately $189
      million of our notes as part of our previously announced debt repurchases.
      We utilized our note receivable from El Paso under its cash management
      program for these repurchases. For a further discussion of our debt, see
      Item 1, Financial Statements, Note
3.







12






Commitments
and Contingencies





See
Item 1, Financial Statements, Note 5, which is incorporated herein by
reference.





Item 3. Quantitative
and Qualitative Disclosures About Market Risk





There are
no material changes in our quantitative and qualitative disclosures about market
risks from those reported in our 2007 Annual Report on Form 10-K.





Item 4. Controls
and Procedures





Evaluation
of Disclosure Controls and Procedures





As of
June 30, 2008, we carried out an evaluation under the supervision and with the
participation of our management, including our President and our Chief Financial
Officer, as to the effectiveness, design and operation of our disclosure
controls and procedures, as defined by the Securities Exchange Act of 1934, as
amended. This evaluation considered the various processes carried out under the
direction of our disclosure committee in an effort to ensure that information
required to be disclosed in the SEC reports we file or submit under the Exchange
Act is accurate, complete and timely. Our management, including our President
and our Chief Financial Officer, does not expect that our disclosure controls
and procedures or our internal controls will prevent and/or detect all errors
and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected. Based on the results of our evaluation, our President and our Chief
Financial Officer concluded that our disclosure controls and procedures are
effective at a reasonable level of assurance at June 30, 2008.





Changes
in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting that have
materially affected or are reasonably likely to materially affect our internal
control over financial reporting during the second quarter
of 2008.





13


PART II —
OTHER INFORMATION





Item 1. Legal
Proceedings





See
Part I, Item 1, Financial Statements, Note 5, which is incorporated
herein by reference.





Item 1A. Risk
Factors





CAUTIONARY
STATEMENTS FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF


THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995





This
report contains forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements are
based on assumptions or beliefs that we believe to be reasonable; however,
assumed facts almost always vary from actual results, and differences between
assumed facts and actual results can be material, depending upon the
circumstances. Where, based on assumptions, we or our management express an
expectation or belief as to future results, that expectation or belief is
expressed in good faith and is believed to have a reasonable basis. We cannot
assure you, however, that the stated expectation or belief will occur, be
achieved or accomplished. The words “believe,” “expect,” “estimate,”
“anticipate,” and similar expressions will generally identify forward-looking
statements. All of our forward-looking statements, whether written or oral, are
expressly qualified by these cautionary statements and any other cautionary
statements that may accompany such forward-looking statements. In addition, we
disclaim any obligation to update any forward-looking statements to reflect
events or circumstances after the date of this report.





Important
factors that could cause actual results to differ materially from estimates or
projections contained in forward-looking statements are described in our 2007
Annual Report on Form 10-K under Part I, Item 1A, Risk Factors. There have
been no material changes in these risk factors since that report.





Item 2. Unregistered
Sales of Equity Securities and Use of Proceeds





None.





Item 3. Defaults
Upon Senior Securities





None.





Item 4. Submission
of Matters to a Vote of Security Holders





None.





Item 5. Other
Information





None.





Item 6. Exhibits





The
Exhibit Index is hereby incorporated herein by reference and sets forth a
list of those exhibits filed herewith.





14


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, Southern Natural Gas
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.










SOUTHERN NATURAL GAS
      COMPANYDate: 
      August 8, 2008
              /s/ James
      C. YardleyJames
      C. YardleyPresident(Principal
      Executive Officer)


Date: 
      August 8, 2008
              /s/ John
      R. SultJohn
      R. SultSenior
      Vice President,Chief
      Financial Officer and Controller(Principal
      Accounting and Financial Officer)
   15


SOUTHERN
NATURAL GAS COMPANY





EXHIBIT
INDEX





Each
exhibit identified below is filed as a part of this report.





Exhibit
              Number
            
            Description31.A
            
            Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.B
            
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.32.A
            
            Certification
      of Principal Executive Officer pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.B
            
            Certification
      of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002.