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 September 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 filer o
            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
            
            
            14Item  4T.
            Controls
      and Procedures
            
            
            14PART
      II — Other InformationItem  1.
            Legal
      Proceedings
            
            
            15Item  1A.
            Risk
      Factors
            
            
            15Item  2.
            Unregistered
      Sales of Equity  Securities and Use of Proceeds
            
            
            15Item  3.
            Defaults
      Upon Senior Securities
            
            
            15Item  4.
            Submission
      of Matters to a Vote of Security Holders
            
            
            15Item  5.
            Other
      Information
            
            
            15Item  6.
            Exhibits
            
            
            15Signatures
            
            
            16


____________





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
            
            
            Nine
      Months EndedSepember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007Operating
      revenues
            
            $
            123
            
            
            $
            121
            
            
            $
            411
            
            
            $
            355Operating
      expensesOperation
      and maintenance
            
            
            49
            
            
            
            44
            
            
            
            134
            
            
            
            118Depreciation
      and amortization
            
            
            13
            
            
            
            14
            
            
            
            40
            
            
            
            39Taxes,
      other than income taxes
            
            
            7
            
            
            
            7
            
            
            
            21
            
            
            
            2069
            
            
            
            65
            
            
            
            195
            
            
            
            177Operating
      income
            
            
            54
            
            
            
            56
            
            
            
            216
            
            
            
            178Earnings
      from unconsolidated affiliates
            
            
            2
            
            
            
            26
            
            
            
            10
            
            
            
            77Other
      income, net
            
            
            3
            
            
            
            —
            
            
            
            10
            
            
            
            10Interest
      and debt expense
            
            
            (17
            )
            
            
            (22
            )
            
            
            (56
            )
            
            
            (66
            )Affiliated
      interest income, net
            
            
            2
            
            
            
            5
            
            
            
            12
            
            
            
            14Income
      before income taxes
            
            
            44
            
            
            
            65
            
            
            
            192
            
            
            
            213Income
      taxes
            
            
            —
            
            
            
            19
            
            
            
            —
            
            
            
            63Income
      from continuing operations
            
            
            44
            
            
            
            46
            
            
            
            192
            
            
            
            150Discontinued
      operations, net of income taxes
            
            
            —
            
            
            
            6
            
            
            
            —
            
            
            
            15Net
      income
            
            
            44
            
            
            
            52
            
            
            
            192
            
            
            
            165Other
      comprehensive income
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1Comprehensive
      income
            
            $
            44
            
            
            $
            52
            
            
            $
            192
            
            
            $
            166





See
accompanying notes.


1


SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED BALANCE SHEETS


(In
millions)


(Unaudited)





September
      30,
            
            
            December 31,2008
            
            
            2007ASSETSCurrent
      assetsCash
      and cash equivalents
            
            $
            —
            
            
            $
            —Accounts
      and notes receivableCustomer
            
            
            6
            
            
            
            5Affiliates
            
            
            43
            
            
            
            89Other
            
            
            2
            
            
            
            1Materials
      and supplies
            
            
            13
            
            
            
            12Other
            
            
            16
            
            
            
            11Total
      current assets
            
            
            80
            
            
            
            118Property,
      plant and equipment, at cost
            
            
            3,577
            
            
            
            3,448Less
      accumulated depreciation and amortization
            
            
            1,354
            
            
            
            1,298Total
      property, plant and equipment, net
            
            
            2,223
            
            
            
            2,150Other
      assetsInvestments
      in unconsolidated affiliates
            
            
            81
            
            
            
            84Note
      receivable from affiliate
            
            
            133
            
            
            
            378Other
            
            
            92
            
            
            
            73306
            
            
            
            535Total
      assets
            
            $
            2,609
            
            
            $
            2,803LIABILITIES
      AND PARTNERS’ CAPITALCurrent
      liabilitiesAccounts
      payableTrade
            
            $
            16
            
            
            $
            29Affiliates
            
            
            8
            
            
            
            3Other
            
            
            18
            
            
            
            16Current
      maturities of long-term debt
            
            
            —
            
            
            
            34Taxes
      payable
            
            
            18
            
            
            
            11Accrued
      interest
            
            
            18
            
            
            
            24Other
            
            
            9
            
            
            
            10Total
      current liabilities
            
            
            87
            
            
            
            127Long-term
      debt, less current maturities
            
            
            909
            
            
            
            1,098Other
      liabilities
            
            
            38
            
            
            
            36Commitments
      and contingencies (Note 5)Partners’
      capital
            
            
            1,575
            
            
            
            1,542Total
      liabilities and partners’ capital
            
            $
            2,609
            
            
            $
            2,803





See
accompanying notes.


2


SOUTHERN
NATURAL GAS COMPANY





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(In
millions)


(Unaudited)








Nine
      Months EndedSeptember
      30,2008
            
            
            2007Cash
      flows from operating activitiesNet
      income
            
            $
            192
            
            
            $
            165Less
      income from discontinued operations, net of income taxes
            
            
            —
            
            
            
            15Income
      from continuing operations
            
            
            192
            
            
            
            150Adjustments
      to reconcile net income to net cash from operating
    activitiesDepreciation
      and amortization
            
            
            40
            
            
            
            39Deferred
      income taxes
            
            
            —
            
            
            
            20Earnings
      from unconsolidated affiliates, adjusted for cash
      distributions
            
            
            3
            
            
            
            54Other
      non-cash income items
            
            
            (5
            )
            
            
            (4
            )Asset
      and liability changes
            
            
            3
            
            
            
            11Cash
      provided by continuing activities
            
            
            233
            
            
            
            270Cash
      provided by discontinued activities
            
            
            —
            
            
            
            25Net
      cash provided by operating activities
            
            
            233
            
            
            
            295Cash
      flows from investing activitiesAdditions
      to property, plant and equipment
            
            
            (107
            )
            
            
            (183
            )Net
      change in note receivable from affiliate
            
            
            269
            
            
            
            (111
            )Cash
      provided by (used) in continuing activities
            
            
            162
            
            
            
            (294
            )Cash
      used in discontinued activities
            
            
            —
            
            
            
            (25
            )Net
      cash provided by (used) in investing activities
            
            
            162
            
            
            
            (319
            )Cash
      flows from financing activitiesNet
      proceeds from issuance of long-term debt
            
            
            —
            
            
            
            494Payment
      to retire long-term debt
            
            
            (236
            )
            
            
            (470
            )Distributions
      to partners
            
            
            (159
            )
            
            
            —Net
      cash provided by (used in) financing activities
            
            
            (395
            )
            
            
            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
September 30, 2008, and for the quarters and nine months ended September 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 do not anticipate the adoption of the
deferred provisions of this standard to have a material impact 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 September 30,
2007.


Quarter
      Ended
            
            
            Nine
      Months EndedSeptember
      30, 2007
            
            
            September
      30, 2007(In
      millions)Revenues
            
            $
            17
            
            
            $
            51Costs
      and expenses
            
            
            (10
            )
            
            
            (31
            )Other
      income, net
            
            
            1
            
            
            
            2Affiliated
      interest income, net
            
            
            2
            
            
            
            2Interest
      and debt expense
            
            
            —
            
            
            
            1Income
      before income taxes
            
            
            10
            
            
            
            25Income
      taxes
            
            
            4
            
            
            
            10Income
      from discontinued operations, net of income taxes
            
            $
            6
            
            
            $
            15





3. Debt





In
September 2008, we retired $34 million of our 6.125% notes due 2008. 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 repurchased these notes
with recoveries of our notes receivable from El Paso under its cash management
program.





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 September 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 September 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 and rights of way in the
OCS; and (3) increasing the requirements and preconditions for obtaining new
rights-of-way in the OCS.





6


Greenhouse Gas
Emissions.  Currently, various legislative and regulatory
measures to address greenhouse gas (GHG) emissions, including carbon dioxide and
methane, are in various phases of discussion or implementation. Various federal
legislative proposals have been made over the last several years.  The
Environmental Protection Agency (EPA) is considering a rulemaking regarding
potential regulation of GHG emissions from stationary and mobile sources under
the Clean Air Act. Legislation and regulation are also in various stages of
proposal, enactment, and implementation in many of the states throughout the
United States. If enacted as proposed, the federal and state legislative and
regulatory proposals would impact our operations and financial
results.  However, until enacted, it is not possible to determine the
exact impact that these future measures might have on our operations and
financial results.  Additionally, various governmental entities and
environmental groups have filed lawsuits seeking to force the federal government
to regulate GHG emissions and individual companies to reduce GHG emissions from
their operations. These and other lawsuits may result in decisions by state
courts, federal agencies, and other governing bodies that could impact our
operations and ability to obtain certifications and permits to construct future
projects.





Rate Case.Under the terms of
our last rate settlement, we are obligated to file proposed new rates to be
effective no later than October 1, 2010. We anticipate filing a new rate case no
later than March 2009 with revised rates expected to become effective September
1, 2009.





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 nine 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 September 30, 2008, we have a performance guarantee
related to contracts held by SLNG, an entity formerly owned by us, with a
maximum exposure of  $225 million and a performance guarantee
related to contracts held by Elba Express, an entity formerly owned by us, with
no stated maximum limit. We estimate our potential exposure related to these
guarantees is approximately $728 million, which is based on their remaining
estimated obligations under the contracts.





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 September 30
is as follows:





Quarter
      Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions)Operating
      results data:Operating
      revenues
            
            $
            4
            
            
            $
            73
            
            
            $
            15
            
            
            $
            202Operating
      expenses
            
            
            2
            
            
            
            28
            
            
            
            6
            
            
            
            84Income
      from continuing operations and net income
            
            
            2
            
            
            
            24
            (1)
            
            
            10
            
            
            
            74
            (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
nine months ended September 30, 2008 and 2007, we received $13 million and $27
million in dividends from Bear Creek. For the nine months ended September 30,
2007, we received $104 million in dividends from Citrus.




7




Transactions with
Affiliates





MLP Acquisition.On September
30, 2008, El Paso’s MLP acquired an additional 15 percent ownership interest in
us.





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 nine months of
2008, we paid cash distributions of approximately $159 million to our partners.
In addition, in October 2008 we paid a cash distribution to our partners of
approximately $41 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 September 30, 2008 and    December 31, 2007,
we had a note receivable from El Paso of $156 million and $425 million. We
classified $23 million and $47 million of this receivable as current on our
balance sheets at September 30, 2008 and December 31, 2007, based on the
net amount we anticipate using in the next twelve months considering available
cash sources and needs. The interest rate on this note at September 30, 2008 and
December 31, 2007 was 3.7% and 6.5%.





Income Taxes. During 2007, we
settled $20 million with El Paso through its cash management program for certain
tax attributes previously reflected as deferred income taxes in our financial
statements. These settlements are reflected as operating activities in our
statement of cash flows.





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 September 30, 2008 and December 31, 2007, our subordinated beneficial
interest in the receivables sold was $16 million and $30 million. The fair
value of the fees earned was immaterial to our financial statements for the
quarters and nine months ended September 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
September 30:





Quarter
      Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions)Revenues
      from affiliates
            
            $
            1
            
            
            $
            2
            
            
            $
            4
            
            
            $
            5Operating
      expenses from affiliates
            
            
            26
            
            
            
            18
            
            
            
            80
            
            
            
            53








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.
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 $628 million on contracted organic growth
projects from 2008 through 2012,  Of this amount, we have spent $66
million through September 30, 2008. These expenditures are primarily related to
the South System III project and the Southeast Supply Header
project.





·
            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 in the first half
      of 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.
      Phase I of the project was placed in service in September 2008. Phase II
      is anticipated to be placed in service in June
  2011.





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 nine months ended September 30, 2008 compared to the same
periods in 2007.





Operating
Results:


Quarter
      Ended
            
            
            Nine
      Months EndedSeptember
      30,
            
            
            September
      30,2008
            
            
            2007
            
            
            2008
            
            
            2007(In
      millions, except for volumes)Operating
      revenues
            
            $
            123
            
            
            $
            121
            
            
            $
            411
            
            
            $
            355Operating
      expenses
            
            
            (69
            )
            
            
            (65
            )
            
            
            (195
            )
            
            
            (177
            )Operating
      income
            
            
            54
            
            
            
            56
            
            
            
            216
            
            
            
            178Earnings
      from unconsolidated affiliates
            
            
            2
            
            
            
            26
            
            
            
            10
            
            
            
            77Other
      income, net
            
            
            3
            
            
            
            —
            
            
            
            10
            
            
            
            10EBIT
            
            
            59
            
            
            
            82
            
            
            
            236
            
            
            
            265Interest
      and debt expense
            
            
            (17
            )
            
            
            (22
            )
            
            
            (56
            )
            
            
            (66
            )Affiliated
      interest income, net
            
            
            2
            
            
            
            5
            
            
            
            12
            
            
            
            14Income
      taxes
            
            
            —
            
            
            
            (19
            )
            
            
            —
            
            
            
            (63
            )Income
      from continuing operations
            
            
            44
            
            
            
            46
            
            
            
            192
            
            
            
            150Discontinued
      operations, net of income taxes
            
            
            —
            
            
            
            6
            
            
            
            —
            
            
            
            15Net
      income
            
            $
            44
            
            
            $
            52
            
            
            $
            192
            
            
            $
            165Throughput
      volumes (BBtu/d)(1)
            
            
            2,343
            
            
            
            3,761
            
            
            
            2,376
            
            
            
            3,364


____________





(1)
            Throughput volumes include 1,224
      BBtu/d and 1,031 BBtu/d for the quarter and nine months ended September
      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 September 30,
      2008
            
            
            Nine Months Ended September 30,
      2008EBIT
            
            
            
            
            
            
            
            
            
            
            
            EBITRevenue
            
            
            Expense
            
            
            Other
            
            
            Impact
            
            
            Revenue
            
            
            Expense
            
            
            Other
            
            
            ImpactFavorable/(Unfavorable)
              (In
      millions)Expansions
            
            $
            —
            
            
            $
            —
            
            
            $
            1
            
            
            $
            1
            
            
            $
            13
            
            
            $
            (3
            )
            
            $
            —
            
            
            $
            10Gas
      not used in operations and other natural gas sales
            
            
            2
            
            
            
            (3
            )
            
            
            —
            
            
            
            (1
            )
            
            
            6
            
            
            
            (9
            )
            
            
            —
            
            
            
            (3
            )Calpine
      bankruptcy
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            33
            
            
            
            —
            
            
            
            —
            
            
            
            33Earnings
      from Citrus
            
            
            —
            
            
            
            —
            
            
            
            (21
            )
            
            
            (21
            )
            
            
            —
            
            
            
            —
            
            
            
            (65
            )
            
            
            (65
            )Other(1)
            
            
            —
            
            
            
            (1
            )
            
            
            (1
            )
            
            
            (2
            )
            
            
            4
            
            
            
            (6
            )
            
            
            (2
            )
            
            
            (4
            )Total
      impact on EBIT
            
            $
            2
            
            
            $
            (4
            )
            
            $
            (21
            )
            
            $
            (23
            )
            
            $
            56
            
            
            $
            (18
            )
            
            $
            (67
            )
            
            $
            (29
            )


____________


(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. Additionally, we placed Phase I of the
Southeast Supply Header in service in September 2008 and 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 quarter and nine
months ended September 30, 2008, our EBIT was lower primarily due to higher cost
of electric compression on our system.





Calpine
Bankruptcy. During the first nine months of 2008, we recognized
revenue related to distributions received under Calpine’s approved plan of
reorganization.  For further information of the Calpine bankruptcy,
see Item 1, Financial Statements, Note 5.





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 nine months ended September 30, 2008, was
$5 million and $10 million lower than the same periods in 2007 primarily
due to lower average outstanding debt balances.





Affiliated
Interest Income, Net





Affiliated
interest income, net for the quarter ended September 30, 2008, was $3 million
lower than the same period in 2007 due to lower average advances due from El
Paso under its cash management program and lower   short-term
interest rates. Affiliated interest income, net for the nine months ended
September 30, 2008, was $2 million lower than the same period in 2007
primarily due to lower average short-term interest rates. The following table
shows the average advances due from El Paso and the average short-term interest
rates for the periods ended September 30:





Quarter
      Ended
            Nine
      Months EndedSeptember
      30,
            September
      30,2008
            2007
            2008
            2007(In
      millions, except for rates)Average
      advance due from El Paso
            $221
            $355
            $357
            $318Average
      short-term interest rate
            3.7%
            6.4%
            4.5%
            6.1%





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 29 percent and 30
percent for the quarter and nine months ended September 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 September 30, 2008, we had a note receivable
from El Paso of approximately $156 million of which approximately $23 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.





Current
global financial markets are extremely volatile.  The U.S. and foreign
governments have recently enacted emergency financial packages that are designed
to restore confidence and liquidity in the global credit markets.  However,
it is uncertain whether such measures will be successful and, if successful,
when the positive effects will be achieved in the financial markets. 
Although we do not anticipate having a need to directly access the financial
markets in 2009 for any of our operating activities or expansion capital needs,
we do rely upon amounts available to us under El Paso’s cash management program
or contributions from our partners to meet our capital requirements and
operating needs.  As of September 30, 2008, El Paso had approximately $1.2
billion of cash and approximately $0.7 billion of capacity available to it under
various committed credit facilities.  Additionally, in response to the
volatility in the financial markets, El Paso has also announced certain actions
that are designed to reduce its need to access such financial markets, including
reductions in the capital programs of certain of its operating subsidiaries and
the sale of  several non-core assets.





In
addition to the liquidity sources and actions discussed above, we also have the
ability to pursue financial market transactions to supplement our operating cash
flows to fund our capital expenditure programs, meet operating needs and repay
debt maturities.  However, there is a risk that the financial markets could
remain volatile and we or El Paso are not able to access these markets, which
could impact our liquidity in the future. For a more detailed discussion of our
operations and risk factors related to our relationship with El Paso, refer to
our 2007 Annual Report on Form 10-K.





12


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





2008
            
            
            2007(In
      millions)Cash
      flows provided by continuing operating activities
            
            $
            233
            
            
            $
            270Cash
      flows provided by (used in) continuing investing
activities
            
            
            162
            
            
            
            (294
            )Cash
      flows provided by (used in) continuing financing
activities
            
            
            (395
            )
            
            
            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 and the impact of expansion projects placed in service during 2007
and 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 nine months ended September 30, 2008, and our
      estimates of capital expenditures for the remainder of this year to expand
      and maintain our system are listed
below.


Nine
      Months Ended
            
            
            2008Sepember
      30, 2008
            
            
            Remaining
            
            
            Total(In
      millions)Maintenance
            
            $
            42
            
            
            $
            33
            
            
            $
            75Expansions
            
            
            65
            
            
            
            12
            
            
            
            77$
            107
            
            
            $
            45
            
            
            $
            152





For the
nine months ended September 30, 2008, our capital expenditures for expansions
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 nine months of 2008, we paid cash distributions of approximately
      $159 million to our partners. In addition, in October 2008 we paid a cash
      distribution to our partners of approximately $41
  million.





·
            Debt.In September
      2008, we retired $34 million of our 6.125% notes due 2008. 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 repurchased these notes with recoveries of our notes
      receivable from El Paso under its cash management
  program.











13


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 4T. Controls
and Procedures





Evaluation
of Disclosure Controls and Procedures





As of
September 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 September 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 third quarter
of 2008.





14


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, such as limited access to the capital markets, 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, except as discussed in
Liquidity and Capital Expenditures in Part I, Item 2, Management’s Discussion
and Analysis of Financial Condition and Results of Operations.





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.





15


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: 
      Novemer 7, 2008
              /s/
      James C. YardleyJames
      C. YardleyPresident(Prncipal Execuative Officer)Date: 
      November 7, 2008
              /s/
      John R. SultJohn
      R. SultSenior
      Vice President,Chief
      Financial Officer and Controller(Principal
      Accounting and Financial Officer)


16


SOUTHERN
NATURAL GAS COMPANY





EXHIBIT
INDEX





Each
exhibit identified below is a part of this report. Exhibits filed with this
report are designated by “*”. All exhibits not so designated are incorporated
herein by reference to a prior filing as indicated.





Exhibit
              Number
            
            Description3.A.
            
            First
      Amendment to the General Partnership Agreement of Southern Natural Gas
      Company, dated September 30, 2008 (incorporated by reference
      to  Exhibit 3.A to our Current Report on Form 8-K filed with the
      SEC on October 6, 2008).*10.A
            
            Amendment
      No. 3, dated as of October 2, 2007, to the Receivables Purchase
      Agreement dated as of October 6, 2006 among SNG Funding Company,
      L.L.C., Southern Natural Gas Company, as initial Servicer, Starbird
      Funding Corporation and other funding entities from time to time party
      hereto as Investors, BNP Paribas, New York Branch, and the other financial
      institutions from time to time party hereto as Managing Agents, and BNP
      Paribas, New York Branch, as Program Agent.*31.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.