UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549
                                    FORM 10-Q

(Mark One)
 X       QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
---      EXCHANGE ACT OF 1934

For the quarterly period ended     September 30, 1998

                                                        OR

         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES 
         EXCHANGE ACT OF 1934

For 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 of                         (I.R.S. Employer
 incorporation or organization)                        Identification No.)


           AMSOUTH-SONAT TOWER
           BIRMINGHAM, ALABAMA                              35203
(Address of principal executive offices)                 (Zip Code)

Registrant's telephone number:                         (205) 325-7410


                                   NO CHANGE
(Former name, former address and former fiscal year, if changed since last 
report)


         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 X No _

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.

                         COMMON STOCK, $3.75 PAR VALUE:

                  1,000 SHARES OUTSTANDING ON OCTOBER 31, 1998

     REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION
     H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH
     THE REDUCED DISCLOSURE FORMAT.


<PAGE>


                  SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>

                                                                                                              Page No.

PART I.       Financial Information

              Item 1.      Financial Statements

                           Condensed Consolidated Balance Sheets
                              (Unaudited)--September 30, 1998 and
<S>                                                                                                           <C>
                              December 31, 1997                                                                1

                           Condensed Consolidated Statements of Income
                              (Unaudited)--Three Months and Nine Months Ended
                              September 30, 1998 and 1997                                                      2

                           Condensed Consolidated Statements of Cash Flows
                              (Unaudited)--Nine Months Ended
                              September 30, 1998 and 1997                                                      3

                           Notes to Condensed Consolidated Financial
                              Statements (Unaudited)                                                           4 - 7

              Item 2.      Management's Discussion and Analysis of
                              Financial Condition and Results of
                              Operations                                                                       8 - 15

PART II.      Other Information

              Item 6.      Exhibits and Reports on Form 8-K                                                   16
</TABLE>




<PAGE>



                          PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements
                  SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                                September 30,            December 31,
                                                                                    1998                     1997
                                                                                            (In Thousands)
                                     ASSETS
Current Assets:
<S>                                                                                <C>                       <C>       
    Cash                                                                           $      155                $    2,905
    Notes receivable from affiliates                                                   63,382                    89,277
    Accounts receivable                                                                65,885                    78,248
    Inventories                                                                        23,324                    21,529
    Gas imbalance receivables                                                           8,018                    13,493
    Other                                                                               2,743                     4,250
                                                                                   ----------                ----------
          Total Current Assets                                                        163,507                   209,702
                                                                                   ----------                ----------

Investments in Unconsolidated Affiliates and Other                                    184,733                    97,054
                                                                                   ----------                ----------

Plant, Property and Equipment                                                       2,605,474                 2,456,773
    Less accumulated depreciation and amortization                                  1,517,040                 1,497,827
                                                                                   ----------                ----------
                                                                                    1,088,434                   958,946
                                                                                   ----------                ----------

Deferred Charges and Other                                                            108,213                   120,629
                                                                                   ----------                ----------
                                                                                   $1,544,887                $1,386,331
                                                                                   ==========                ==========

                      LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities:
    Long-term debt due within one year                                             $    5,000                $    6,220
    Accounts payable                                                                   29,919                    49,364
    Accrued income taxes                                                                5,987                     4,078
    Other accrued taxes                                                                 9,047                     9,150
    Accrued interest                                                                   20,322                    20,028
    Gas imbalance payables                                                              8,350                    10,498
    Other                                                                               9,876                    10,493
                                                                                   ----------                ----------
          Total Current Liabilities                                                    88,501                   109,831
                                                                                   ----------                ----------

Long-Term Debt                                                                        500,000                   405,000
                                                                                   ----------                ----------

Deferred Credits and Other:
    Deferred income taxes                                                             155,801                   134,073
    Other                                                                              61,907                    85,734
                                                                                   ----------                ----------
                                                                                      217,708                   219,807
                                                                                   ----------                ----------

Commitments and Contingencies

Stockholder's Equity:
    Common stock and other capital                                                     79,722                    79,336
    Retained earnings                                                                 658,956                   572,357
                                                                                   ----------                ----------
          Total Stockholder's Equity                                                  738,678                   651,693
                                                                                   ----------                ----------

                                                                                   $1,544,887                $1,386,331
                                                                                   ==========                ==========
</TABLE>


                             See accompanying notes.
<PAGE>

                  SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                      Three Months                        Nine Months
                                                                    Ended September 30,                Ended September 30,
                                                              1998               1997           1998                1997
                                                                                     (In Thousands)
Revenues:
<S>                                                             <C>              <C>              <C>              <C>     
    Transportation and storage                                  $88,822          $87,675          $273,918         $268,389
    Other                                                         4,527            5,479            20,432           27,312
                                                                -------          -------          --------         --------
                                                                 93,349           93,154           294,350          295,701
                                                                -------          -------          --------         --------

Costs and Expenses:
    Operating and maintenance                                    21,054           20,440            59,649           60,241
    General and administrative                                   14,812           15,770            42,510           52,862
    Depreciation and amortization                                13,647           11,982            32,186           35,595
    Taxes, other than income                                      5,335            5,005            16,055           14,975
                                                                -------          -------          --------         --------
                                                                 54,848           53,197           150,400          163,673
                                                                -------          -------          --------         --------

Operating Income                                                 38,501           39,957           143,950          132,028

Other Income, Net:
    Equity in earnings of
       unconsolidated affiliates                                  5,938            2,716            15,675            8,113
    Other, net                                                    2,002              986             3,749            5,911
                                                                -------          -------          --------         --------
                                                                  7,940            3,702            19,424           14,024
                                                                -------          -------          --------         --------

Earnings Before Interest and Taxes                               46,441           43,659           163,374          146,052

Interest:
    Interest income, primarily
       from affiliates                                              269              326             2,838              515
    Interest expense                                             (9,210)          (7,151)          (27,485)         (21,525)
    Interest capitalized                                            850              462             1,816            1,318
                                                                -------          -------          --------         --------
                                                                 (8,091)          (6,363)          (22,831)         (19,692)
                                                                -------          -------          --------         --------

Income before Income Taxes                                       38,350           37,296           140,543          126,360

Income Tax Expense                                               14,599           14,206            53,944           48,582
                                                                -------          -------          --------         --------

Net Income                                                      $23,751          $23,090          $ 86,599         $ 77,778
                                                                =======          =======          ========         ========
</TABLE>















                             See accompanying notes.
<PAGE>

                  SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                               Nine Months
                                                                                          Ended September 30,
                                                                                     1998                       1997
                                                                                             (In Thousands)
Cash Flows from Operating Activities:
<S>                                                                                 <C>                       <C>      
    Net income                                                                      $  86,599                 $  77,778
    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Depreciation and amortization                                                32,186                    35,595
          Deferred income taxes                                                        21,676                    16,395
          Equity in earnings of unconsolidated
              affiliates, less distributions                                          (12,175)                   (3,613)
          Reserves for regulatory matters                                              (4,431)                   (9,905)
          Gas supply realignment costs                                                    792                     5,988
          Change in:
              Accounts receivable                                                      12,363                    12,741
              Inventories                                                              (1,795)                     (816)
              Accounts payable                                                        (19,446)                  (19,112)
              Accrued interest and income taxes, net                                    3,165                    (1,148)
              Other current assets and liabilities                                      3,153                    20,519
          Other                                                                       (13,558)                   (4,414)
              Net cash provided by operating
                 activities                                                           108,529                   130,008
                                                                                    ---------                 ---------

Cash Flows from Investing Activities:
    Plant, property and equipment additions                                          (160,297)                 (100,503)
    Notes receivable, primarily from affiliates                                        25,895                  (110,817)
    Investments in unconsolidated affiliates and other                                (70,657)                  (12,131)
                                                                                    ---------                 ---------
              Net cash used in investing activities                                  (205,059)                 (223,451)
                                                                                    ---------                 ---------

Cash Flows from Financing Activities:
    Proceeds from issuance of long-term debt                                          100,000                   100,000
    Payments of long-term debt                                                         (6,220)                   (5,960)
    Changes in short-term borrowings                                                     -                       (1,189)
                                                                                    ---------                 ---------
              Net cash provided by financing activities                                93,780                    92,851
                                                                                    ---------                 ---------

Net Decrease in Cash                                                                   (2,750)                     (592)

Cash at Beginning of Period                                                             2,905                     2,316
                                                                                    ---------                 ---------

Cash at End of Period                                                               $     155                 $   1,724
                                                                                    =========                 =========

Supplemental Disclosures of Cash Flow Information
Cash Paid for:
    Interest (net of amount capitalized)                                            $  23,705                 $  20,715
    Income taxes paid, net                                                             29,119                    29,841
</TABLE>








                             See accompanying notes.


<PAGE>


                  SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

1.       Basis of Presentation

         Southern Natural Gas Company is a wholly owned subsidiary of Sonat Inc.

         The  accompanying   condensed   consolidated  financial  statements  of
Southern  Natural  Gas and its  subsidiaries  (Southern)  have been  prepared in
accordance  with the  instructions  to Form 10-Q and include the information and
footnotes  required  by such  instructions.  In the opinion of  management,  all
adjustments,  including those of a normal recurring nature,  have been made that
are necessary  for a fair  presentation  of the results for the interim  periods
presented herein.

         Certain amounts in the 1997 condensed consolidated financial statements
and notes have been reclassified to conform with the 1998 presentation.

         During the first quarter of 1998,  Southern  recognized the effect of a
change in salvage values,  including  reversal of excess  depreciation  expense,
relating to certain fixed assets,  primarily aircraft and vehicles.  The change,
which was to comply with recent  Federal  Energy  Regulatory  Commission  (FERC)
directives,  increased net income for the nine-month  period ended September 30,
1998, by $4.6 million.  The effect of the change on the three-month period ended
September 30, 1998, was not material.

         In the  first  quarter  of  1998,  Statement  of  Financial  Accounting
Standards (SFAS) No. 130,  Reporting  Comprehensive  Income,  which  established
standards for reporting and display of comprehensive  income and its components,
became  effective  for  Southern.  Southern has no items of other  comprehensive
income that it is required to report under provisions of SFAS No. 130.

         SFAS No. 131,  Disclosures  about Segments of an Enterprise and Related
Information  also became  effective  for Southern in the first  quarter of 1998.
SFAS No. 131 establishes  standards for the way public enterprises are to report
information  about operating  segments and requires  certain other  disclosures.
Southern operates in one segment and  implementation of SFAS No. 131 has minimal
effect on its reporting.

2.       Unconsolidated Affiliates

         Southern  Natural  Gas owns a  one-third  interest  in Destin  Pipeline
Company,  L.L.C.  (Destin)  and a  subsidiary  of  Southern  Natural Gas owns 50
percent of Bear Creek Storage Company, an underground gas storage company.



<PAGE>


2.       Unconsolidated Affiliates (Cont'd)

         The  following is  summarized  income  statement  information  for Bear
Creek.  No provision for income taxes has been  included  since its income taxes
are paid directly by the joint-venture participants.
<TABLE>
<CAPTION>

                                                                    Three Months                       Nine Months
                                                                Ended September 30,                Ended September 30,
                                                                --------------------               -------------------
                                                           1998             1997              1998              1997
                                                           ----             ----              ----              ----
                                                                                (In Thousands)

<S>                                                         <C>               <C>             <C>               <C>    
Revenues                                                    $8,882            $8,899          $26,732           $27,218
Expenses:
    Operating expenses                                       1,533             1,157            5,286             3,519
    Depreciation                                             1,361             1,358            4,080             4,072
    Other expenses, net                                      1,112             1,269            3,420             3,849
                                                            ------            ------          -------           -------

Income Reported                                             $4,876            $5,115          $13,946           $15,778
                                                            ======            ======          =======           =======
</TABLE>


         In April 1997, units of Shell Oil Company and Amoco Corporation  joined
with   Southern    Natural   Gas   in   the    ownership   of   Destin,    a   1
billion-cubic-feet-per-day  pipeline  designed  to  transport  natural  gas from
deep-water  areas in the eastern  Gulf of Mexico.  Construction  of the pipeline
began in December 1997. Destin was partially  completed and placed in service in
September 1998, and is expected to be fully in service by January 1999. The FERC
has approved two  extensions  of Destin for a total filed cost of an  additional
$56  million.  The total  cost of Destin is now  estimated  to be $446  million.
Destin's  pretax earnings of $10.1 million and $25.5 million for the three-month
and nine-month periods ended September 30, 1998, and $.6 million and $.9 million
for the three-month and nine-month  periods ended September 30, 1997,  primarily
relate to the allowance for funds used during  construction  capitalized  on its
expenditures to date.

3.       Debt and Notes To and From Affiliates

         As part of Sonat's cash  management  program,  Southern can either loan
funds to or borrow  funds from Sonat.  Notes  receivable  and payable are in the
form of demand notes with rates reflecting Sonat's return on funds loaned to its
subsidiaries, average short-term investment rates and cost of borrowed funds. In
certain  circumstances,  these  notes are  subordinated  in right of  payment to
amounts payable by Sonat under certain long-term credit agreements.

         Southern  Natural Gas has  short-term  lines of credit of $50.0 million
available  through May 31, 1999.  Borrowings  are  available for a period of not
more than 364 days and are in the form of unsecured  promissory  notes that bear
interest  at rates  based  on the  banks'  prevailing  prime,  international  or
money-market  lending rates. At September 30, 1998, no amounts were  outstanding
under its agreement.
<PAGE>

3.       Debt and Notes To and From Affiliates (Cont'd)

         In  September  1998,  Southern  Natural  Gas made a public  offering of
$100.0  million of its 6.125  percent  Notes due  September  15, 2008, at 99.531
percent  to  yield  6.189  percent.  The net  proceeds  from the  offering  were
initially  loaned  to Sonat to be later  used for  general  corporate  purposes,
including capital expenditures.

4.       Rate Matters and Contingencies

         Periodically,  Southern  makes  general  rate  filings with the FERC to
provide for the  recovery  of cost of service  and a return on equity.  The FERC
normally allows the filed rates to become effective, subject to refund, until it
rules on the approved level of rates.  Southern  provides  reserves  relating to
such amounts collected subject to refund, as appropriate, and makes refunds upon
establishment  of the final rates. At September 30, 1998,  Southern Natural Gas'
rates are established by a settlement that was approved by FERC orders issued in
1995 and 1996.  All of its  customers  are  parties to the  settlement,  and all
revenue  is based on the final  settlement  rates and  therefore  not  collected
subject to refund.

         SFAS No. 71, Accounting for the Effects of Certain Types of Regulation,
provides  that  rate-regulated  entities  account  for  and  report  assets  and
liabilities  consistent with the economic effect of the way in which  regulators
establish  rates,  if the rates  established  are  designed to recover  costs of
providing  the regulated  service and if the  competitive  environment  makes it
reasonable to assume such rates can be charged and collected.  Certain  expenses
and  credits  subject to rate  determination  normally  reflected  in income are
deferred  in the  balance  sheet and are  recognized  in  income as the  related
amounts  are  included  in  service  rates and  recovered  from or  refunded  to
customers. Information regarding Southern's regulatory assets and liabilities is
shown below:

                                            September 30,           December 31,
                                                1998                    1997
                                                      (In Thousands)

 Regulatory Assets:
    SFAS No. 109 Tax Gross-Up                  $22,339                 $19,801
    Unrecovered Depreciation                    14,003                  13,853
    Work Force Reduction                         6,332                   8,608
    Charitable Donation                          7,220                   7,897
    Cash Out Differential                        6,496                  12,449
    Other                                        7,443                   8,398
                                               -------                 -------

                                               $63,833                 $71,006
                                               =======                 =======

 Regulatory Liabilities:
    Excess Deferred Taxes Due Customers        $ 4,124                 $ 5,291
                                               =======                 =======
<PAGE>

4.       Rate Matters and Contingencies (Cont'd)

         SFAS  No.  109 tax  gross-up  is  recorded  pursuant  to FERC  policies
allowing future  recovery of taxes  associated with the allowance for funds used
during construction (AFUDC).  Unrecovered  depreciation represents amounts to be
recovered  in  future  rates  pursuant  to a  1992  FERC  settlement.  Cash  out
differential  represents the amount of price  differential  cost associated with
storage  transactions  recoverable  pursuant to Southern  Natural Gas'  customer
settlement.  Excess deferred tax due customers  represents amounts due customers
pursuant to federal tax rate normalization.




<PAGE>



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

RESULTS OF OPERATIONS

         The principal  business of Southern is the  transmission and storage of
natural gas in interstate commerce in the southeastern  United States.  Southern
is  actively  pursuing  opportunities  to  expand  its  pipeline  system  in its
traditional market areas and to connect new gas supplies.

         In April 1997, units of Shell Oil Company and Amoco Corporation  joined
with   Southern    Natural   Gas   in   the    ownership   of   Destin,    a   1
billion-cubic-feet-per-day  pipeline  designed  to  transport  natural  gas from
deep-water  areas in the  eastern  Gulf of Mexico.  Southern  Natural  Gas has a
one-third interest in this pipeline.  Shell and Amoco have made substantial firm
transportation  commitments  to this  pipeline.  Eight other  shippers have also
dedicated their  production from certain leases in the eastern Gulf of Mexico to
Destin for  transportation  and discussions are under way with other prospective
shippers.  Construction  of the  pipeline  began in  December  1997,  and it was
partially  completed  and in service in  September  1998,  and is expected to be
fully in service by January  1999.  In June  1998,  the FERC  approved  Destin's
application to extend its pipeline  system  approximately  14 miles to transport
additional gas reserves committed to Destin's system. This extension is expected
to be in  service  in late  1998.  In July 1998 the FERC also  approved  another
Destin application to extend its pipeline by approximately 31 miles to transport
additional gas reserves  committed to its system.  This extension is expected to
be in  service  in early  1999.  The  total  capital  expended  by Destin is now
estimated to be $446 million.

         Southern  Natural Gas is moving forward on three expansions to northern
Alabama,  eastern Tennessee, and central Alabama that have a total filed capital
cost of $126 million.  The North Alabama  expansion,  which originally  received
FERC  approval in May 1997, is now  anticipated  to go in service in the fall of
1999.  Southern  Natural  Gas  received  FERC  approval  in  October  1998 of an
application  that it had filed to change the route of the pipeline as it crosses
the Wheeler National  Wildlife Refuge,  but the new route must still be approved
by the U.S. Fish and Wildlife  Service.  The 122-mile  expansion will provide 76
million-cubic-feet-per-day  capacity to the  participating  customers.  A second
expansion  to serve  customers  primarily  in eastern  Tennessee  received  FERC
approval  in April 1998 and was placed in service  in  November  1998.  Southern
Natural Gas has firm transportation  commitments  totaling 65 million cubic feet
of natural gas per day from customers in eastern Tennessee,  Georgia and Alabama
related to this  expansion.  The  expansion  in central  Alabama  received  FERC
approval  in March 1998 and is also  expected  to go in service in  November  of
1998.  This  expansion  will  provide  34  million  cubic  feet  per day of firm
transportation to Alabama Power Company and two other customers.

         In December  1997,  an  affiliate of AGL  Resources,  Inc. and Southern
Natural Gas formed a new entity,  Etowah LNG Company,  L.L.C.  (Etowah  LNG), to
jointly construct,  own and operate a new liquefied natural gas peaking facility
in Polk County,  Georgia.  Peaking services provide supplemental gas supplies on
days when demand is highest,  typically during the winter.  Under the agreement,
AGL Resources  and Southern  Natural Gas each will own 50 percent of Etowah LNG,
which will be regulated by the FERC.  The proposed  plant will connect  directly
into AGL Resources' principal natural gas distribution  subsidiary,  Atlanta Gas
Light  Company,  and  Southern  Natural Gas'  pipeline.  Etowah LNG will provide
natural gas  storage  and peaking  services to Atlanta Gas Light and the city of
Austell,  Georgia. The new facility will cost approximately $90 million with 300
million  cubic  feet per day of  deliverability  capacity.  Etowah  LNG  filed a
certificate application with the FERC in April 1998. Subject to receiving timely
FERC approval, construction will begin in early 1999 in order to provide peaking
services during the 2001-02 winter heating season.  The agreement for Etowah LNG
to provide services to Atlanta Gas Light includes, however, a provision allowing
Atlanta Gas Light to terminate  the  agreement in the event it does not receive,
with respect to the  agreement,  a  satisfactory  order from the Georgia  Public
Service  Commission  (Georgia  PSC). In September 1998 the Georgia PSC issued an
order approving the agreement, but allowed for further review of it. In light of
this order,  the parties  have  agreed to extend the time  period  during  which
Atlanta Gas Light may  terminate  the agreement to December 15, 1998. If Atlanta
Gas Light  exercises its option to terminate its service  agreement  with Etowah
LNG,  the project  would not go forward and Atlanta Gas Light would be obligated
to reimburse Etowah LNG for all of its costs incurred in the project to date.



<PAGE>


Operations
<TABLE>
<CAPTION>
                                                                    Three Months                       Nine Months
                                                                Ended September 30,                Ended September 30,
                                                               ---------------------              --------------------
                                                           1998             1997              1998              1997
                                                           ----             ----              ----              ----
                                                                                 (In Millions)
Revenues:
    Market transportation and
<S>                                                        <C>               <C>             <C>               <C>   
       storage                                             $77.7             $74.9           $239.1            $232.7
    Supply transportation                                   11.1              12.8             34.8              35.7
    Other                                                    4.6               5.4             20.5              27.3
                                                           -----             -----           ------            ------
       Total Revenues                                       93.4              93.1            294.4             295.7
                                                           -----             -----           ------            ------

Costs and Expenses:
    Operating and maintenance                               21.0              20.4             59.6              60.2
    General and administrative                              14.8              15.8             42.5              52.9
    Depreciation and amortization                           13.6              12.0             32.2              35.6
    Taxes, other than income                                 5.4               5.0             16.1              15.0
                                                           -----             -----           ------            ------
                                                            54.8              53.2            150.4             163.7
                                                           -----             -----           ------            ------

Operating Income                                            38.6              39.9            144.0             132.0
Other Income:
    Equity in earnings of
       unconsolidated affiliates                             6.0               2.7             15.7               8.1
    Other                                                    1.9               1.0              3.7               5.9
                                                           -----             -----           ------            ------
                                                             7.9               3.7             19.4              14.0
                                                           -----             -----           ------            ------

Earnings Before Interest and Taxes                         $46.5             $43.6           $163.4            $146.0
                                                           =====             =====           ======            ======

                                                                             (Billion Cubic Feet)
Volumes:
    Market transportation                                    140               133              462               439
    Supply transportation                                     85               109              283               289
                                                           -----             -----           ------            ------
       Total Volumes                                         225               242              745               728
                                                           =====             =====           ======            ======
</TABLE>


Third Quarter 1998 to Third Quarter 1997 Analysis

         Earnings  before  interest  and taxes  (EBIT)  for  Southern  was $46.5
million in the third  quarter of 1998  compared  with $43.6 million in the third
quarter of 1997.  The increase was primarily due to higher equity in earnings of
Destin  and  an  expansion  placed  in  service,   partially  offset  by  higher
depreciation expense.

         Market  transportation  revenues  increased  as a result of the  recent
expansions.  Supply  transportation  revenues  decreased  due to a  decrease  in
volumes as a result of hurricanes and tropical  storms,  and natural  production
declines   taking  place  in  certain  Gulf  of  Mexico   fields.   General  and
administrative  expense  decreased  primarily  due  to  lower  employee  benefit
expenses and stock-based  compensation  expense.  Depreciation  and amortization
expense  increased in the 1998 period due to plant  additions  and pursuant to a
provision  of the customer  settlement  allowing a deferral of  depreciation  on
certain  plant  categories  until  March 1,  1998.  That  deferral  is now being
amortized.
<PAGE>

         Equity in earnings of unconsolidated  affiliates  increased in 1998 due
to earnings of Destin,  primarily  resulting from AFUDC capitalized.  During the
third quarter,  construction of the offshore  portion on the Destin Pipeline was
completed,  and it is currently  transporting about 90 million cubic feet (MMcf)
of natural gas per day. As additional  reserves are connected  during the fourth
quarter, daily throughput is expected to exceed 200 MMcf per day by year end.

Nine Months 1998 to Nine Months 1997 Analysis

         EBIT was $163.4 million for the nine months ending  September 30, 1998,
compared  with  $146.0  million  for the same  1997  period.  The  increase  was
primarily due to an expansion  placed in service,  lower  expenses and increased
earnings of Destin.  Partially  offsetting these increases was the net effect of
reserve adjustments made in the 1997 and 1998 periods, which is discussed below.

         Market  transportation  revenues  improved  primarily  due to a  recent
expansion.  Other  revenues  decreased  due to a favorable  $10 million  reserve
adjustment in 1997 relating to Southern  Natural Gas'  obligation to pay royalty
claims in connection with  take-or-pay  settlements  entered into in the 1980's,
offset  partially  by the  reversal  of the  remaining  $4.2  million of royalty
reserves in 1998. Such reversal was made because management  determined that the
likelihood of Southern Natural Gas making any significant  royalty payments as a
result  of  its  prior   take-or-pay   settlements   was  remote.   General  and
administrative  expenses  decreased  primarily  due to  lower  employee  benefit
expenses,  lower insurance expenses and lower stock-based  compensation expense.
Depreciation and amortization  expense decreased  primarily due to an adjustment
of the  salvage  value on  certain  fixed  assets  (see  Note 1 of the  Notes to
Condensed Consolidated  Financial Statements).  Increases due to plant additions
and the  amortization  of the  deferred  depreciation  pursuant to the  customer
settlement partially offset this decrease.

         Equity in earnings of unconsolidated  affiliates  increased in 1998 due
to earnings of Destin, primarily resulting from AFUDC capitalized on its current
construction costs. Other income was lower primarily due to the recognition of a
gain on the termination of a forward rate agreement in the 1997 period.

Natural Gas Sales and Supply

         As a result of FERC Order No. 636,  Southern  Natural Gas terminated or
renegotiated  to market pricing  substantially  all of its gas supply  contracts
through which it had historically obtained its long-term gas supply. Pending the
termination of the remaining supply  contracts,  Southern Natural Gas' remaining
gas supply is sold on a month-to-month  basis. Gas sales revenue and natural gas
cost are included in other revenue.

         Southern Natural Gas' annual purchase  commitments  total less than $25
million per year for 1998 and subsequent  years.  Based on Southern Natural Gas'
current  expectations  with  respect to natural gas prices in 1998 and the years
following,  only an  insignificant  amount of gas  volumes is  expected to be at
prices above market.
<PAGE>

Rate Matters

         Under  terms of a  settlement  approved  by the FERC,  all of  Southern
Natural Gas' previously  pending rate proceedings and proceedings to recover gas
supply realignment and other transition costs associated with the implementation
of FERC Order No.  636 have been  resolved.  The  settlement  requires  Southern
Natural Gas to file a new rate case no later than September 1, 1999.



Other Income Statement Items
<TABLE>
<CAPTION>

                                                               Three Months                         Nine Months
                                                            Ended September 30,                 Ended September 30,
                                                           1998             1997              1998              1997
                                                                                (In Millions)

<S>                                                        <C>               <C>             <C>               <C>    
Interest Expense, Net                                      $(8.1)            $(6.4)          $(22.8)           $(19.7)
</TABLE>

         Net interest  expense  increased in both the three-month and nine-month
periods of 1998 due to higher average debt levels and interest on taxes. Average
interest rates on debt decreased slightly in both 1998 periods. In addition, the
nine-month  period of 1998 included higher interest income resulting from higher
average loan balances to affiliates.

<TABLE>
<S>                                                        <C>               <C>             <C>               <C>   
Income Tax Expense                                         $14.6             $14.2           $ 53.9            $ 48.6
</TABLE>

         Income tax expense  increased in the 1998 periods due to higher  pretax
income.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
<TABLE>
<CAPTION>

                                                                                                    Nine Months
                                                                                                Ended September 30,
                                                                                              1998              1997
                                                                                                   (In Millions)

<S>                                                                                          <C>              <C>    
Operating Activities                                                                         $108.5           $ 130.0
</TABLE>

         Cash flow from operations  decreased $21.5 million compared to the 1997
period. The change in deferred taxes is primarily attributable to an increase in
plant in service and the adjustment of the salvage value on certain fixed assets
(see Note 1 of the Notes to Condensed Consolidated Financial Statements). Equity
in earnings of  unconsolidated  affiliates  increased due to higher  earnings of
Destin.  The change in reserves  for  regulatory  matters  reflects  the royalty
reserve  adjustments in 1998 and 1997, which were discussed earlier.  The change
in other current assets and liabilities primarily reflects the timing of certain
tax payments and higher payments for storage replacement in 1998.
<PAGE>

<TABLE>
<CAPTION>

                                                                                                    Nine Months
                                                                                                Ended September 30,
                                                                                              1998              1997
                                                                                                   (In Millions)

<S>                                                                                         <C>               <C>     
Investing Activities                                                                        $(205.1)          $(223.5)
</TABLE>

         Net cash used in investing  activities  was $18.4  million less in 1998
compared to 1997.  The  decrease  was  attributable  to  repayments  to Southern
Natural Gas of  intercompany  loans in the current period by Southern's  parent,
Sonat Inc.  Sonat had  borrowed  funds from  Southern  Natural  Gas in the prior
period.  Partially  offsetting  the change in  intercompany  loans  were  higher
investments  in  unconsolidated  affiliates,  primarily  for Destin,  and higher
capital  expenditures  related to Southern  Natural Gas'  expansion  programs in
1998.

<TABLE>
<S>                                                                                         <C>               <C>    
Financing Activities                                                                        $  93.8           $  92.9
</TABLE>

     Net cash provided by financing activities was essentially unchanged in 1998
compared to the 1997 period.  Southern  Natural Gas borrowed $100 million in the
public market in both periods.

Capital Resources

         At September  30, 1998,  Southern  Natural Gas had bank lines of credit
with a total  capacity of $50.0 million,  all of which was  available.  Southern
Natural Gas also has a shelf  registration  statement  with the  Securities  and
Exchange  Commission  which provides for the issuance of up to $500.0 million in
debt securities of which $100.0 million has been issued.

         Southern's  capital  expenditures and other investing  requirements for
1998 are budgeted to aggregate  approximately $315 million. This amount reflects
investments in unconsolidated affiliates, expansions and other projects.

         Southern expects to continue to use cash from operations and borrowings
in either the public or private  markets or loans from affiliates to finance its
capital and other corporate expenditures.

MARKET RISK

         Financial  instruments  of Southern  expose it to  interest  rate risk.
Southern's  entire  portfolio of interest rate risk instruments is classified as
non-trading.

         Southern's  interest  income is  sensitive  to  changes in the level of
short-term  interest rates in the United  States.  In general,  Southern  either
loans excess  funds to Sonat or repays its  short-term  borrowings.  Excess cash
generated  by  or  contributed  to  joint  venture  projects  is  invested  on a
short-term basis pending distribution or expenditure on capital projects.
<PAGE>

YEAR 2000 PROJECT

         Southern is aware of the  potential  impact the Year 2000 could have on
its information technology and business infrastructure.  To answer the Year 2000
challenge,   the  Sonat  Board  of  Directors  directed  that  a  corporate-wide
initiative  be  undertaken.  A  consulting  firm was  engaged  to assist in this
effort.

         Southern   has  divided  its  Year  2000   project   into   assessment,
implementation,  testing,  and contingency phases.  During the assessment phase,
Southern  completed a comprehensive  inventory of IT systems,  embedded systems,
equipment,  computer hardware, and software that rely on a computer chip as well
as service providers that could be impacted by the Year 2000 problem. For vendor
supplied items,  Southern has contacted its vendors seeking written verification
of Year 2000 readiness.  In addition,  Southern is also  communicating  with its
customers  and  business  partners  to  determine  the  extent  to  which  it is
vulnerable  to the failure of those third  parties to remediate  their Year 2000
issue.

         Southern is currently engaged in the  implementation and testing phases
of the Year 2000 project.  The  implementation  phase  includes  completing  the
replacement of mainframe systems with Year 2000-compliant vendor packages on new
client/server  platforms and performing any required  modifications and upgrades
identified  during the  assessment  phase.  The testing phase  involves  testing
systems for Year 2000  readiness.  Southern is  scheduled  to have all  critical
systems tested,  remediations  plans defined,  and corrective action underway by
December 31, 1998. All remediation efforts are scheduled to be completed by June
30, 1999.

         Southern is also currently developing  contingency plans as practicable
for critical systems,  service  providers,  and business  partners.  These plans
involve developing contingencies for failures that may result from the Year 2000
problem.  Southern is scheduled to have these plans  completed by June 30, 1999.
Southern has not completed  analyzing  worst case scenarios and therefore is not
able to estimate potential lost revenue at this time.

         The estimated  cost to Southern of the Year 2000 project for capital as
well as general and  administrative  costs is expected to be $2.5  million to $5
million. As of September 30, 1998, Southern has incurred  approximately $600,000
in Year 2000 project costs.  Southern expects fund Year 2000  expenditures  from
normal operations.
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENT

         In June 1998, the Financial  Accounting  Standards  Board (FASB) issued
Statement of  Financial  Accounting  Standards  (SFAS) No. 133,  Accounting  for
Derivative  Instruments and Hedging Activities.  SFAS No. 133 requires companies
to recognize all  derivatives  on the balance  sheet at fair value.  Derivatives
that are not hedges  must be adjusted  to fair value  through  income as changes
occur.  If the  derivative  is a hedge,  depending  on the  nature of the hedge,
changes in the fair value of derivatives are either offset against the change in
fair value of assets,  liabilities,  or firm  commitments  through  earnings  or
recognized in other comprehensive  income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately  recognized in earnings.  SFAS No. 133 becomes  effective for fiscal
years beginning after June 15, 1999. As a result,  calendar  year-end  companies
have until January 1, 2000, to adopt. Early application is encouraged,  but only
permitted as of the beginning of any fiscal quarter.  Retroactive application to
previous  periods,  even previous  quarters  within the same fiscal year, is not
permitted. Southern does not currently have any derivative instruments.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

         This  Quarterly  Report  contains  certain  forward-looking  statements
regarding  Southern's  business  plans  and  prospects,   objectives,  expansion
projects,  proposed capital  expenditures  and expected  performance or results.
These forward-looking statements are based on assumptions that Southern believes
are reasonable,  but are subject to a wide range of risks and uncertainties and,
as a result,  actual  results  and  experience  may differ  materially  from the
anticipated  results or other  expectations  expressed  in such  forward-looking
statements.  Such statements are made in reliance on the safe harbor  provisions
of the Private Securities Litigation Reform Act of 1995.

         Important factors that could cause actual results to differ include the
requirements to receive various governmental approvals to proceed with expansion
projects at Southern,  Destin, and Etowah, and unanticipated construction delays
in connection  with such  projects.  Realization  of Southern's  objectives  and
expected  performance can also be adversely affected by the actions of customers
and competitors,  changes in governmental  regulation of Southern's  businesses,
and changes in general  economic  conditions  and the state of domestic  capital
markets.  There can be no assurance  that Destin will be able to timely  connect
new fields or that the  production  from those  fields will allow it to meet its
planned throughput objectives.




<PAGE>


                           PART II. OTHER INFORMATION


Item 6.  Exhibits and Reports on Form 8-K

(a)      Exhibits1

Exhibit
Number                              Exhibits


12*       Computation of Ratio of Earnings to Fixed Charges

27*       Financial Data Schedules for the period ended September 30, 1998, 
          filed electronically only
------------
*  Filed herewith


(b)      Reports on Form 8-K

         The Company filed a Report on Form 8-K on September 17, 1998, reporting
certain information under Item 5 with respect to the Grynberg complaint.

         The Company filed a Report on Form 8-K on September 24, 1998, reporting
certain  information  under Item 5 with  respect to the issuance and sale by the
Company of $100,000,000 aggregate principal amount of 6.125% Notes due September
15, 2008, and furnished certain related exhibits under Item 7.

















1    The Company will  furnish to  requesting  security  holders the exhibits on
     this list  upon the  payment  of a fee of $.10 per page up to a maximum  of
     $5.00 per exhibit.  Requests  must be in writing and should be addressed to
     R. David Hendrickson,  Secretary,  Southern Natural Gas Company,  P. O. Box
     2563, Birmingham, Alabama, 35202-2563.


<PAGE>



                  SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES




                                   SIGNATURES





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



                                                   Southern Natural Gas Company



Date:        November 12, 1998               By:    /s/ Thomas W. Barker, Jr.
       ----------------------------                --------------------------
                                                   Thomas W. Barker, Jr.
                                                   Vice President-Finance




Date:        November 12, 1998               By:    /s/ Norman G. Holmes
       ----------------------------                ---------------------
                                                   Norman G. Holmes
                                                   Vice President & Controller