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     June 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 JULY 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
<S>                                                                                                           <C>
                              (Unaudited)--June 30, 1998 and December 31, 1997                                 1

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

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

                           Notes to Condensed Consolidated Financial
                              Statements (Unaudited)                                                           4 - 6

              Item 2.      Management's Discussion and Analysis of
                              Financial Condition and Results of
                              Operations                                                                       7 - 13

PART II.      Other Information

              Item 5.      Legal Proceedings                                                                  14

              Item 6.      Exhibits and Reports on Form 8-K                                                   14
</TABLE>




<PAGE>


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

                                                                                  June 30,               December 31,
                                                                                    1998                     1997
                                                                                            (In Thousands)
                                                        ASSETS
Current Assets:
<S>                                                                               <C>                      <C>       
    Cash                                                                          $      424               $    2,905
    Notes receivable from affiliates                                                  23,093                   89,277
    Accounts receivable                                                               66,239                   78,248
    Inventories                                                                       26,544                   21,529
    Gas imbalance receivables                                                          9,494                   13,493
    Other                                                                              5,220                    4,250
                                                                                  ----------               ----------
          Total Current Assets                                                       131,014                  209,702
                                                                                  ----------               ----------

Investments in Unconsolidated Affiliates and Other                                   156,302                   97,054
                                                                                  ----------               ----------

Plant, Property and Equipment                                                      2,527,416                2,456,773
    Less accumulated depreciation and amortization                                 1,505,397                1,497,827
                                                                                  ----------               ----------
                                                                                   1,022,019                  958,946
                                                                                  ----------               ----------

Deferred Charges and Other                                                           107,476                  120,629
                                                                                  ----------               ----------
                                                                                  $1,416,811               $1,386,331
                                                                                  ==========               ==========

                      LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities:
    Long-term debt due within one year                                            $    5,000               $    6,220
    Accounts payable                                                                  25,126                   49,364
    Accrued income taxes                                                               3,311                    4,078
    Other accrued taxes                                                                6,735                    9,150
    Accrued interest                                                                  20,169                   20,028
    Gas imbalance payables                                                             7,630                   10,498
    Other                                                                              9,325                   10,493
                                                                                  ----------               ----------
          Total Current Liabilities                                                   77,296                  109,831
                                                                                  ----------               ----------

Long-Term Debt                                                                       400,000                  405,000
                                                                                  ----------               ----------

Deferred Credits and Other:
    Deferred income taxes                                                            151,267                  134,073
    Other                                                                             73,453                   85,734
                                                                                  ----------               ----------
                                                                                     224,720                  219,807
                                                                                  ----------               ----------

Commitments and Contingencies

Stockholder's Equity:
    Common stock and other capital                                                    79,590                   79,336
    Retained earnings                                                                635,205                  572,357
                                                                                  ----------               ----------
          Total Stockholder's Equity                                                 714,795                  651,693
                                                                                  ----------               ----------

                                                                                  $1,416,811               $1,386,331
                                                                                  ==========               ==========
</TABLE>


                             See accompanying notes.
<PAGE>

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

                                                                   Three Months                        Six Months
                                                                  Ended June 30,                     Ended June 30,
                                                               --------------------               -----------------
                                                                  1998            1997             1998              1997
                                                                  ----            ----             ----              ----
                                                                                     (In Thousands)
Revenues:
<S>                                                             <C>             <C>               <C>              <C>     
    Transportation and storage                                  $90,006         $ 86,950          $185,096         $180,714
    Other                                                         5,494           16,431            15,905           21,833
                                                                -------         --------          --------         --------
                                                                 95,500          103,381           201,001          202,547
                                                                -------         --------          --------         --------

Costs and Expenses:
    Operating and maintenance                                    19,037           22,170            38,595           39,801
    General and administrative                                   12,226           19,049            27,698           37,092
    Depreciation and amortization                                13,048           11,960            18,539           23,613
    Taxes, other than income                                      5,371            4,773            10,720            9,970
                                                                -------         --------          --------         --------
                                                                 49,682           57,952            95,552          110,476
                                                                -------         --------          --------         --------

Operating Income                                                 45,818           45,429           105,449           92,071
                                                                -------         --------          --------         --------

Other Income, Net:
    Equity in earnings of
       unconsolidated affiliates                                  5,612            2,701             9,737            5,397
    Other, net                                                    1,094              968             1,747            4,925
                                                                -------         --------          --------         --------
                                                                  6,706            3,669            11,484           10,322
                                                                -------         --------          --------         --------

Earnings Before Interest and Taxes                               52,524           49,098           116,933          102,393
                                                                -------         --------          --------         --------

Interest:
    Interest income, primarily
       from affiliates                                            1,170               43             2,569              189
    Interest expense                                             (9,209)          (7,063)          (18,275)         (14,374)
    Interest capitalized                                            493              348               966              856
                                                                -------         --------          --------         --------
                                                                 (7,546)          (6,672)          (14,740)         (13,329)
                                                                -------         --------          --------         --------

Income Before Income Taxes                                       44,978           42,426           102,193           89,064

Income Tax Expense                                               17,346           16,404            39,345           34,376
                                                                -------         --------          --------         --------

Net Income                                                      $27,632         $ 26,022          $ 62,848         $ 54,688
                                                                =======         ========          ========         ========
</TABLE>















                             See accompanying notes.
<PAGE>

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

                                                                                               Six Months
                                                                                             Ended June 30,
                                                                                     1998                       1997
                                                                                             (In Thousands)
Cash Flows from Operating Activities:
<S>                                                                                 <C>                        <C>     
    Net income                                                                      $ 62,848                   $ 54,688
    Adjustments to reconcile net income to net
       cash provided by (used in) operating activities:
          Depreciation and amortization                                                18,539                    23,613
          Deferred income taxes                                                        17,194                     9,534
          Equity in earnings of unconsolidated
              affiliates, less distributions                                           (6,237)                     (897)
          Reserves for regulatory matters                                              (4,431)                  (10,003)
          Gas supply realignment costs                                                    563                     4,967
          Change in:
              Accounts receivable                                                      12,008                    16,294
              Inventories                                                              (5,015)                   (5,045)
              Accounts payable                                                        (24,239)                  (20,636)
              Accrued interest and income taxes, net                                      178                     2,978
              Other current assets and liabilities                                     (4,225)                    3,360
          Other                                                                         2,174                     1,558
                                                                                     --------                  --------
              Net cash provided by operating
                 activities                                                            69,357                    80,411
                                                                                     --------                  --------

Cash Flows from Investing Activities:
    Plant, property and equipment additions                                           (82,234)                  (59,037)
    Notes receivable, primarily from affiliates                                        66,184                   (16,455)
    Investment in unconsolidated affiliates and other                                 (49,568)                    1,261
                                                                                     --------                  --------
              Net cash used in investing activities                                   (65,618)                  (74,231)
                                                                                     --------                  --------

Cash Flows from Financing Activities:
    Payments of long-term debt                                                         (6,220)                   (5,640)
    Changes in short-term borrowings                                                     -                       (1,189)
                                                                                     --------                  --------
              Net cash used in financing activities                                    (6,220)                   (6,829)
                                                                                     --------                  --------

Net Decrease in Cash                                                                   (2,481)                     (649)

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

Cash at End of Period                                                                $    424                  $  1,667
                                                                                     ========                  ========

Supplemental Disclosures of Cash Flow Information
Cash Paid for:
    Interest (net of amount capitalized)                                             $ 16,014                  $ 12,438
    Income taxes paid, net                                                             21,862                    23,249
</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 six-month  period ended June 30, 1998,
by $4.4 million.  The effect of the change on the three-month  period ended June
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. 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                        Six Months
                                                                   Ended June 30,                     Ended June 30,
                                                                --------------------               -----------------
                                                          1998              1997              1998              1997
                                                          ----              ----              ----              ----
                                                                                (In Thousands)

<S>                                                       <C>                <C>              <C>               <C>    
Revenues                                                  $8,821             $8,973           $17,850           $18,319
Expenses:
    Operating expenses                                     1,452              1,120             3,753             2,361
    Depreciation                                           1,360              1,358             2,719             2,714
    Other expenses, net                                    1,116              1,248             2,308             2,581
                                                          ------             ------           -------           -------

Income Reported                                           $4,893             $5,247           $ 9,070           $10,663
                                                          ======             ======           =======           =======
</TABLE>

         In April 1997, units of Shell Oil Company and Amoco Corporation  joined
with    Southern    in    the    ownership    of    Destin    Pipeline,    a   1
billion-cubic-feet-per-day  pipeline  designed  to  transport  natural  gas from
deep-water  development  in the  eastern  Gulf of  Mexico.  Construction  of the
pipeline began in December  1997,  and it is expected to be partially  completed
and in service in August 1998,  and 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 $416  million.
Destin's  earnings of $9.2 million and $15.4 million for the three month and six
month  periods  ended  June 30,  1998,  respectively,  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  Natural Gas 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 June 30, 1998, no amounts were outstanding under
its agreement.



<PAGE>


4.       Rate Matters and Contingencies

         Periodically,  Southern and its subsidiaries  make 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  and its
subsidiaries  provide  reserves  relating to such amounts  collected  subject to
refund, as appropriate,  and make refunds upon establishment of the final rates.
At June 30, 1998,  Southern's  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:

<TABLE>
<CAPTION>
                                                                               June 30,                December 31,
                                                                                  1998                     1997
                                                                                       (In Thousands)

    Regulatory Assets:
       <S>                                                                      <C>                     <C>    
       SFAS No. 109 Tax Gross-Up                                                $21,143                 $19,801
       Unrecovered Depreciation                                                  13,953                  13,853
       Work Force Reduction                                                       7,089                   8,608
       Charitable Donation                                                        7,446                   7,897
       Cash Out Differential                                                      8,058                  12,449
       Other                                                                      7,605                   8,398
                                                                                -------                 -------

                                                                                $65,294                 $71,006
                                                                                =======                 =======

    Regulatory Liabilities:
       Excess Deferred Taxes Due Customers                                      $ 4,513                 $ 5,291
                                                                                =======                 =======
</TABLE>

         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  is the  reserve for price  differential  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  Natural  Gas  Company  and  its
subsidiaries  (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  in  the  ownership  of  Destin  Pipeline  Company,  L.L.C.,  a 1
billion-cubic-feet-per-day  pipeline  designed  to  transport  natural  gas from
deep-water  areas  in the  eastern  Gulf of  Mexico.  Southern  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 is
expected to be partially  completed and in service in August 1998,  and fully in
service by January 1999. In June 1998, the Federal Energy Regulatory  Commission
(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,  which will cost  approximately  $19  million,  is  expected to be in
service  in late  1998.  In July  1998 the FERC  also  approved  another  Destin
application to extend its pipeline again by  approximately 31 miles at a cost of
approximately $37 million to transport  additional gas reserves committed to its
system.  This  extension  is expected to be in service in early 1999.  The total
cost of Destin is now estimated to be $416 million.

         Southern 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 received FERC approval in May
1997, is now  anticipated to go in service in the fall of 1999,  subject to FERC
approval of an  application  that Southern  filed in February 1998 to change the
route of the pipeline as it crosses the Wheeler National  Wildlife  Refuge.  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 is anticipated to go
in  service in  November  1998.  Southern  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 the fourth quarter 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
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  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's  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.  Affiliates of AGL  Resources  will manage the
construction   of  the   facility   and  operate  it.   Southern   will  provide
administrative  services.  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.
<PAGE>

Operations
<TABLE>
<CAPTION>
                                                               Three Months                        Six Months
                                                              Ended June 30,                     Ended June 30,
                                                           --------------------               -----------------
                                                           1998             1997              1998              1997
                                                           ----             ----              ----              ----
                                                                                 (In Millions)
Revenues:
    Market transportation and
<S>                                                        <C>              <C>              <C>               <C>   
       storage                                             $77.9            $ 74.6           $161.4            $157.8
    Supply transportation                                   12.1              12.4             23.7              22.9
    Other                                                    5.5              16.5             15.9              21.9
                                                           -----            ------           ------            ------
       Total Revenues                                       95.5             103.5            201.0             202.6
                                                           -----            ------           ------            ------

Costs and Expenses:
    Operating and maintenance                               19.0              22.2             38.6              39.8
    General and administrative                              12.2              19.1             27.7              37.1
    Depreciation and amortization                           13.1              11.9             18.6              23.6
    Taxes, other than income                                 5.4               4.8             10.7              10.0
                                                           -----            ------           ------            ------
                                                            49.7              58.0             95.6             110.5
                                                           -----            ------           ------            ------

Operating Income                                            45.8              45.5            105.4              92.1
                                                           -----            ------           ------            ------
Other Income:
    Equity in Earnings of
       Unconsolidated Affiliates                             5.6               2.7              9.7               5.4
    Other                                                    1.1                .9              1.8               4.9
                                                           -----            ------           ------            ------
                                                             6.7               3.6             11.5              10.3
                                                           -----            ------           ------            ------

Earnings Before Interest and Taxes                         $52.5            $ 49.1           $116.9            $102.4
                                                           =====            ======           ======            ======

                                                                             (Billion Cubic Feet)
Volumes:
    Market transportation                                    137               136              322               306
    Supply transportation                                    103               100              198               180
                                                           -----            ------           ------            ------
       Total Volumes                                         240               236              520               486
                                                           =====            ======           ======            ======

    Transition gas sales                                       3                17                6                35
                                                           =====            ======           ======            ======
</TABLE>

<PAGE>

Second Quarter 1998 to Second Quarter 1997 Analysis

         Earnings  before  interest  and taxes  (EBIT)  for  Southern  was $52.5
million  compared with $49.1 million in the second quarter of 1997. The increase
was primarily due to lower expenses of Southern and higher equity in earnings of
the  Destin  Pipeline.  Partially  offsetting  was the  effect of a $10  million
reserve  adjustment  in the  second  quarter  of  1997  relating  to  Southern's
obligation to pay royalty  claims in  connection  with  take-or-pay  settlements
entered into in the 1980's.  The adjustment  related to a favorable  state court
ruling.

         Market  transportation   revenues  increased  as  a  result  of  recent
expansions.  Other revenue decreased  primarily due to the reserve adjustment of
$10 million  included in the 1997  period.  Operating  and  maintenance  expense
decreased primarily due to lower fuel costs. General and administrative expenses
decreased  primarily  due to lower  employee  benefit  expenses and  stock-based
compensation. 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.

         Equity in earnings of unconsolidated  affiliates  increased in 1998 due
to earnings of Destin Pipeline, primarily resulting from the allowance for funds
used during construction (AFUDC) capitalized.

Six Months 1998 to Six Months 1997 Analysis

         EBIT was  $116.9  million  for the six  months  ending  June 30,  1998,
compared with $102.4 million for the 1997 period. The increase was primarily due
to expansions placed in service, lower expenses and earnings of Destin Pipeline.
Partially  offsetting 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  recent
expansions. Other revenues decreased due to a favorable 1997 reserve adjustment,
discussed  earlier,  offset  partially by the reversal of the remaining  royalty
reserves in 1998. Such reversal has been made because  management has determined
that the likelihood of Southern  making any  significant  royalty  payments as a
result of its prior take-or-pay settlements is remote. Operating and maintenance
expense decreased primarily due to lower fuel costs.  General and administrative
expenses  decreased  primarily due to lower  employee  benefit  expenses,  lower
insurance  expenses  and  lower  stock-based   compensation.   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).

         Equity in earnings of unconsolidated  affiliates  increased in 1998 due
to earnings of Destin Pipeline,  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.
<PAGE>

Natural Gas Sales and Supply

     As a result of FERC Order No. 636,  Southern  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's  remaining gas supply is sold on a
month-to-month  basis.  Gas sales  revenue and natural gas cost are  included in
other revenue.

         Southern's annual purchase  commitments total less than $25 million per
year for 1998 and subsequent  years.  Based on Southern's  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.

Rate Matters

         Under terms of a  settlement  approved by the FERC,  all of  Southern's
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 to file
a new rate case no later than September 1, 1999.




Other Income Statement Items
<TABLE>
<CAPTION>

                                                               Three Months                         Six Months
                                                              Ended June 30,                      Ended June 30,
                                                           1998             1997              1998              1997
                                                                                (In Millions)

<S>                                                        <C>               <C>              <C>               <C>  
Interest Expense, Net                                      $ 7.5             $ 6.7            $14.7             $13.3
</TABLE>

         Net interest  expense  increased in both the  three-month and six-month
periods of 1998 due to higher average debt levels and higher  interest on taxes.
The effect of lower  interest  rates on debt and  increased  interest  income on
higher  average  loan  balances to  affiliates  slightly  offset the increase in
interest expense.

<TABLE>
<S>                                                        <C>               <C>              <C>               <C>  
Income Tax Expense                                         $17.3             $16.4            $39.3             $34.4
</TABLE>

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



<PAGE>


LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
<TABLE>
<CAPTION>

                                                                                                    Six Months
                                                                                                  Ended June 30,
                                                                                              1998              1997
                                                                                                   (In Millions)

<S>                                                                                          <C>               <C>   
Operating Activities                                                                         $ 69.4            $ 80.4
</TABLE>

         Cash flow from operations  decreased $11.0 million compared to the 1997
period.  The change in  depreciation  is primarily  due to an  adjustment of the
salvage  value on certain  fixed  assets  (see Note 1 of the Notes to  Condensed
Consolidated  Financial  Statements).  The change in deferred taxes is primarily
attributable to an increase in plant in service and the depreciation adjustment.
Lower gas sales and lower GSR direct bill  collections  were the primary reasons
for the change in accounts receivable. The change in accounts payable was due to
the timing of intercompany settlements. The change in accrued interest and taxes
is primarily due to higher state tax payments in the current period.  The change
in other  current  assets  and  liabilities  primarily  reflects  the  timing of
payments for property and other taxes.

<TABLE>
<S>                                                                                          <C>               <C>    
Investing Activities                                                                         $(65.6)           $(74.2)
</TABLE>

         Net cash used in  investing  activities  was $8.6  million less in 1998
compared to 1997. The decrease was  attributable  to repayments of  intercompany
loans in the  current  period by  Southern's  parent,  Sonat  Inc.,  compared to
borrowings on intercompany loans in the prior period.  Partially  offsetting the
change in intercompany  loans were investments in  unconsolidated  affiliates of
$53.0 million,  primarily for Destin, and higher capital expenditures related to
Southern's expansion programs in 1998.

<TABLE>
<S>                                                                                          <C>               <C>    
Financing Activities                                                                         $ (6.2)           $ (6.8)
</TABLE>

         Net cash used in financing activities was essentially unchanged in 1998
compared to the 1997 period.

CAPITAL RESOURCES

         At June 30,  1998,  Southern  had bank  lines  of  credit  with a total
capacity of $50.0 million, all of which was available. Southern 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.

         Southern's  capital  expenditures and other investing  requirements for
1998 are budgeted to aggregate $260 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.
<PAGE>

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.

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,  and  testing  phases.  During the  assessment  phase,  Southern
completed  a  comprehensive  inventory  of IT  and  non-IT  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 larger
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 and developing  contingency  plans for critical
systems and service  providers.  Southern has not completely  finished analyzing
the most reasonably  likely worst case scenarios and cannot  estimate  potential
lost  revenue at this time.  Southern  is  scheduled  to be  completed  with the
implementation and testing phases by December 31, 1998.

         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 June 30, 1998, Southern has incurred  approximately  $400,000 in
Year  2000  project  costs.  Southern  expects  to be  able to  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.  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.






<PAGE>


                           PART II. OTHER INFORMATION


Item 5.  Legal Proceedings

         As reported in Item 3 of the Company's Report on Form 10-K for the year
ended December 31, 1997, Tennessee Gas Pipeline Company  ("Tennessee") had filed
an  application  with the FERC  seeking to have the exchange  agreement  between
Southern and Tennessee,  pursuant to which Southern delivers and receives gas to
and from the Bear Creek  Storage Field at no charge,  converted  into a standard
transportation  agreement by which  Tennessee would charge Southern tariff rates
for providing that service. In May 1998 the FERC denied Tennessee's application.

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  June  30,  1998,  filed
     electronically only

------------
*  Filed herewith


(b)      Reports on Form 8-K

         The  Company  did not file any report on Form 8-K  during  the  quarter
ended June 30, 1998.













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:        August 13, 1998               By:    /s/ Thomas W. Barker, Jr.
       --------------------------                --------------------------
                                                 Thomas W. Barker, Jr.
                                                 Vice President-Finance




Date:        August 13, 1998               By:    /s/ Norman G. Holmes
       --------------------------                ---------------------
                                                 Norman G. Holmes
                                                 Vice President & Controller