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, 1996

                                          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, 1996

     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>

<S>                                                                                      <C>
                                                               
                                                                                         Page No.

PART I.    Financial Information

           Item 1.    Financial Statements

                      Condensed Consolidated Balance Sheets
                         (Unaudited)--September 30, 1996 and
                         December 31, 1995                                                 1

                      Condensed Consolidated Statements of Income
                         (Unaudited)--Three Months and Nine Months Ended
                         September 30, 1996 and 1995                                       2

                      Condensed Consolidated Statements of Cash Flows
                         (Unaudited)--Nine Months Ended
                         September 30, 1996 and 1995                                       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 - 14

PART II.   Other Information

           Item 1.    Legal Proceedings                                                   15

           Item 6.    Exhibits and Reports on Form 8-K                                    15
</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,
                                                                     1996                1995
                                                                          (In Thousands)
                                     ASSETS
Current Assets:
<S>                                                               <C>                   <C>

   Cash                                                              $ 1,800              $    711
   Notes receivable, primarily from affiliates                        40,972               103,845
   Accounts receivable                                                93,949               118,542
   Inventories                                                        27,416                21,625
   Gas imbalance receivables                                          16,054                15,919
   Federal and state income taxes                                     17,134                13,160
   Other                                                              22,393                25,835
                                                                  ----------               -------
         Total Current Assets                                        219,718               299,637
                                                                    --------              --------

Investments in Unconsolidated Affiliates and Other                    52,030                49,535
                                                                     -------               -------

Plant, Property and Equipment                                      2,398,402             2,315,003
   Less accumulated depreciation and amortization                  1,532,312             1,504,087
                                                                  ----------            ----------
                                                                     866,090               810,916
                                                                    --------              --------

Deferred Charges and Other:
   Gas supply realignment costs                                       21,115               199,073
   Other                                                              80,119                78,548
                                                                  ----------               -------
                                                                     101,234               277,621
                                                                    --------              --------
                                                                  $1,239,072            $1,437,709
                                                                  ==========            ==========


                      LIABILITIES AND STOCKHOLDER'S EQUITY

Current Liabilities:
   Long-term debt due within one year                                $ 6,964               $ 6,964
   Notes payable to affiliates                                            -                 14,981
   Accounts payable                                                   47,207                56,787
   Accrued state income taxes                                             -                  1,856
   Accrued interest                                                   14,274                15,404
   Gas imbalance payables                                             14,020                17,196
   Other                                                              20,269                17,258
                                                                  ----------               -------
         Total Current Liabilities                                   102,734               130,446
                                                                    --------              --------

Long-Term Debt                                                       310,856               317,627
                                                                    --------              --------

Deferred Credits and Other:
   Deferred income taxes                                             124,492                80,956
   Reserves for regulatory matters                                    14,358               181,798
   Other                                                              82,713               152,784
                                                                  ----------              --------
                                                                     221,563               415,538
                                                                    --------              --------

Commitments and Contingencies

Stockholder's Equity:
   Common stock and other                                            100,673               100,616
   Retained earnings                                                 503,246               473,482
                                                                    --------              --------
         Total Stockholder's Equity                                  603,919               574,098
                                                                    --------              --------

                                                                  $1,239,072            $1,437,709
                                                                  ==========            ==========
</TABLE>


                             See accompanying notes.

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


                                                       Three Months                  Nine Months
                                                    Ended September 30,          Ended September 30,
                                                   1996           1995         1996            1995
                                                                    (In Thousands)
Revenues:
<S>                                               <C>           <C>            <C>           <C>

   Natural gas sales                              $ 39,784      $ 44,884       $154,372      $138,820
   Transportation and storage                       89,415        88,155        273,250       282,606
   Other                                            13,034        41,475        180,786        63,242
                                                  --------      --------       --------      --------
                                                   142,233       174,514        608,408       484,668
                                                  --------      --------       --------      --------

Costs and Expenses:
   Natural gas cost                                 39,197        44,729        151,154       137,128
   Transition cost recovery                          7,309        32,259        160,445        40,665
   Operating and maintenance                        24,646        23,238         66,916        63,538
   General and administrative                       18,857        20,507         58,890        61,089
   Depreciation and amortization                    11,316        12,257         36,110        39,781
   Taxes, other than income                          4,716         4,761         14,029        14,895
                                                    ------      --------        -------      --------
                                                   106,041       137,751        487,544       357,096
                                                  --------      --------       --------      --------

Operating Income                                    36,192        36,763        120,864       127,572

Other Income (Loss), Net:
   Equity in earnings of
      unconsolidated affiliates                      2,341         2,319          7,236         7,161
   Other                                             4,861           269          5,750           371
                                                  --------      --------         ------      --------
                                                     7,202         2,588         12,986         7,532
                                                    ------      --------        -------      --------

Interest:
   Interest income, primarily
      from affiliates                                1,311         1,783          4,566         6,707
   Interest expense                                 (8,401)      (10,663)       (30,696)      (31,624)
   Interest capitalized                                303            64            599           165
                                                      ----      --------           ----      --------
                                                    (6,787)       (8,816)       (25,531)      (24,752)
                                                   -------      --------       --------      --------

Income before Income Taxes                          36,607        30,535        108,319       110,352

Income Taxes                                        13,729        11,730         41,356        42,447
                                                   -------      --------        -------      --------

Net Income                                        $ 22,878      $ 18,805       $ 66,963      $ 67,905
                                                  ========      ========       ========      ========
</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,
                                                                      1996                 1995
                                                                           (In Thousands)
Cash Flows from Operating Activities:
<S>                                                                  <C>                  <C>

   Net income                                                        $ 66,963             $ 67,905
   Adjustments to reconcile net income to net
      cash provided by operating activities:
         Depreciation and amortization                                 36,110               39,781
         Deferred income taxes                                         43,537               38,172
         Equity in earnings of joint
           ventures, less distributions                                (2,086)              (2,911)
         Reserves for regulatory matters                             (167,440)              (6,330)
         Gas supply realignment costs                                 182,325              (50,319)
         Change in:
           Accounts receivable                                         24,593               22,717
           Inventories                                                 (5,791)              (1,304)
           Accounts payable                                            (9,579)               1,055
           Accrued interest and income taxes, net                      (8,167)             (36,799)
           Other current assets and liabilities                         4,406               (8,002)
         Other                                                        (74,806)             (19,248)
                                                                      -------             --------
           Net cash provided by operating
              activities                                               90,065               44,717
                                                                      -------             --------

Cash Flows from Investing Activities:
   Plant, property and equipment additions                            (94,900)             (36,823)
   Notes receivable, primarily from affiliates                         62,872               37,477
   Proceeds from disposal of assets and other                           2,003                  945
                                                                       ------             --------
           Net cash provided by (used in)
              investing activities                                    (30,025)               1,599
                                                                     --------             --------

Cash Flows from Financing Activities:
   Payments of long-term debt                                          (6,771)              (5,960)
   Changes in short-term borrowings                                   (14,980)                  -
                                                                     --------               ------
      Net changes in debt                                             (21,751)              (5,960)
   Dividends paid                                                     (37,200)             (37,200)
                                                                     --------             --------
           Net cash used in financing activities                      (58,951)             (43,160)
                                                                     --------             --------

Net Increase in Cash                                                    1,089                3,156

Cash at Beginning of Period                                               711                1,048
                                                                         ----             --------

Cash at End of Period                                                 $ 1,800             $  4,204
                                                                      =======             ========

Supplemental Disclosures of Cash Flow Information
Cash Paid for:
   Interest (net of amount capitalized)                              $ 22,173             $ 24,820
   Income taxes, net                                                    3,648               34,392
</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  (Southern) is a wholly owned subsidiary of
Sonat Inc.

        The accompanying condensed consolidated financial statements of Southern
and its  subsidiaries  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 1995 condensed  consolidated  financial  statements
have been reclassified to conform with the 1996 presentation.

2.      Derivative Financial Instruments

        Financial  Risk - On January 22, 1996,  Southern  entered into a forward
rate  agreement  to  hedge  the  interest  rate  risk of an  anticipated  future
borrowing  under an  existing  shelf  registration  statement.  The base 10 year
treasury rate for this future borrowing was hedged at approximately 5.78 percent
on a notional amount of $97 million. In September,  due to revised  expectations
of external financing requirements, 50 percent of the forward rate agreement was
liquidated  resulting in a gain of $3.9 million. At September 30, 1996, the fair
market value of the remaining  $48.5 million  notional  amount of this agreement
was approximately $3 million.

3.      Unconsolidated Affiliates

        A subsidiary of Southern  owns 50 percent of Bear Creek Storage  Company
(Bear Creek),  an underground gas storage  company.  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,
                                             1996           1995         1996           1995
                                 (In Thousands)
<S>                                          <C>           <C>           <C>           <C> 

Revenues                                     $8,924        $8,885        $27,117       $27,113
Expenses:
   Operating expenses                         1,262         1,206          3,797         3,732
   Depreciation                               1,354         1,350          4,061         4,049
   Other expenses, net                        1,441         1,560          4,335         4,718
                                             ------        ------         ------       -------

Income Reported                              $4,867        $4,769        $14,924       $14,614
                                             ======        ======        =======       =======
</TABLE>




<PAGE>


4.      Debt and Notes To and From Affiliates

        Unsecured Notes - As part of Sonat's cash management  program,  Southern
regularly  loans funds to or borrows  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. For cash management purposes, in September, Southern began borrowing
from its subsidiaries in order to eliminate the loan from its parent.

        Southern has available  short-term  lines of credit of $50 million for a
period of 364 days.  Borrowings  are available  through May 27, 1997, 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, 1996, no amounts were outstanding.

5.      Commitments and Contingencies

        Rate Matters - Periodically,  Southern and its subsidiaries make general
rate filings with the Federal Energy Regulatory Commission (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 September 30, 1996,  Southern's rates
are  established  by the  Customer  Settlement  and a FERC order  effective  for
parties  contesting  the Customer  Settlement and are not subject to refund (see
discussion below).

        Customer  Settlement  - In 1992 the FERC  issued  its Order No. 636 (the
Order).  The Order  required  significant  changes  in  interstate  natural  gas
pipeline  services.  Interstate  pipeline  companies,  including  Southern,  are
incurring  certain  costs  (transition  costs)  as a result  of the  Order,  the
principal one being costs related to amendment or termination  of, or purchasing
gas at above-market  prices under,  existing gas purchase  contracts,  which are
referred to as gas supply realignment (GSR) costs.

        In an order issued on September 29, 1995,  (the Settlement  Order),  the
FERC approved a comprehensive settlement (the Customer Settlement) that Southern
had filed on March 15, 1995. The Customer  Settlement,  which is effective as to
all  Southern's  customers,  except one customer  representing  approximately  2
percent of the firm transportation  capacity on Southern's system,  resolved all
of Southern's previously pending rate proceedings and proceedings to recover GSR
and other transition costs associated with the  implementation of Order No. 636.
The four major rate cases resolved by the Customer  Settlement cover consecutive
periods  beginning  September 1, 1989. In May 1996, the Settlement  became final
and  Southern  credited  in the  aggregate  the full amount of  Southern's  rate
reserves as

<PAGE>


5.      Commitments and Contingencies (Cont'd)

of February 28, 1995, plus interest, less certain amounts withheld for potential
refunds  to  contesting  parties,  to reduce the GSR costs  borne by  Southern's
customers.  The total  credit  recorded in May 1996  amounted  to $164  million.
Southern  implemented  reduced  settlement  rates  effective  March 1, 1995. The
Customer  Settlement  provides that,  except in certain  limited  circumstances,
Southern  will not file a general  rate case to be  effective  prior to March 1,
1998. The  Settlement  also provides for Southern to recover $363 million of GSR
costs  incurred or reserved as of September  30, 1996,  and 50 percent of future
GSR costs that  Southern  may incur  thereafter,  which future costs the Company
believes  will  not  be  material  to  its  financial  position  or  results  of
operations.

        Several parties that opposed the Customer  Settlement had filed with the
FERC requests for rehearing of the Settlement Order. On April 11, 1996, the FERC
denied those  requests for  rehearing of the  Settlement  Order and also decided
certain issues in prior rate proceedings  that affect the contesting  parties to
the  Customer  Settlement  (April  11  Order).  Pursuant  to the April 11 Order,
Southern made refunds to the  contesting  parties in May 1996  covering  various
rate  periods  from January 1, 1991,  through  December  31, 1995.  Southern was
adequately reserved for these refunds. The only issues remaining to be litigated
at the FERC by the one remaining  contesting party concern the recoverability of
certain GSR and other  transition  costs under Order No. 636, which would not be
material  even if  such  issues  were  determined  adversely  to  Southern.  The
contesting  party,  and one  other  entity  that may  potentially  compete  with
Southern in providing  storage  services,  have each appealed the April 11 Order
and the Settlement  Order to the D.C.  Circuit Court of Appeals.  Although there
can be no assurances,  the Company  believes that the  Settlement  Order and the
April 11 Order should be upheld on appeal.

        Sea Robin - In January 1995, Sea Robin Pipeline Company, a subsidiary of
Southern,  filed with the FERC a petition for a declaratory  ruling that the Sea
Robin  pipeline  system is  engaged  in the  gathering  of  natural  gas and is,
therefore,  exempt from FERC regulation under the Natural Gas Act. In June 1995,
the FERC denied Sea Robin's  petition on the basis that the primary  function of
the Sea Robin  system  is the  interstate  transportation  of gas.  Sea  Robin's
request for  rehearing  of that ruling was denied by the FERC on June 26,  1996.
Sea Robin filed on August 15, 1996,  for judicial  review of the orders  denying
its petition.

        Following the filing of Sea Robin's petition for a gathering  exemption,
several of the  shippers on the Sea Robin system filed with the FERC in February
1995 a  complaint  against  Sea Robin  under  Section 5 of the  Natural  Gas Act
claiming that Sea Robin's rates are unjust and unreasonable.  In its answer, Sea
Robin asked the FERC to dismiss the complaint or to find that its rates continue
to be just and reasonable based on the data it presented.  On July 31, 1996, the
FERC issued an order on the complaint, instituting an

<PAGE>


5.      Commitments and Contingencies (Cont'd)

investigation  and hearing  under Section 5 of the Natural Gas Act. Sea Robin is
unable to predict  the  outcome of this  proceeding,  but any  reduction  in Sea
Robin's  rates  as a  result  of this  complaint  can be  implemented  only on a
prospective  basis and any such  change is not  expected  to be  material to the
Company's financial position or results of operations.

        Gas Purchase  Contracts - Southern currently is incurring no take-or-pay
liabilities under its gas purchase  contracts.  Southern regularly evaluates its
position relative to gas purchase contract matters,  including the likelihood of
loss from asserted or unasserted take-or-pay claims or above-market prices. When
a loss is probable and the amount can be reasonably estimated, it is accrued.




<PAGE>





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

                          SOUTHERN NATURAL GAS COMPANY
                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

        The  principal   business  of  Southern  and  its  subsidiaries  is  the
interstate  transmission of natural gas in the southeastern United States, which
is regulated by the FERC.

        Southern continues to pursue opportunities to expand its pipeline system
in its traditional  market area and to connect new gas supplies.  Southern filed
an application on January 24, 1996, with the FERC seeking approval to expand its
pipeline  system to provide firm gas  transportation  service to three  existing
customers   and  to  two  new   customers   in  North   Alabama.   The  proposed
76-million-cubic-feet-per-day   expansion  is   supported   by  long-term   firm
transportation agreements, including the cities of Huntsville and Decatur, which
have executed  20-year service  agreements for 40 million cubic feet per day and
25 million cubic feet per day,  respectively.  The $53 million project  includes
118 miles of new pipeline and  additional  compression  on  Southern's  existing
system. The earliest in-service date for the proposed expansion,  which requires
FERC  approval,  would be November  1997.  The company that  currently  provides
transportation  service to the cities of Huntsville  and Decatur has  challenged
this project in Alabama state court and with the FERC.

        In May 1996,  Southern filed an application  with the FERC to expand its
pipeline  system in Zone 3 of its market area.  This $36 million  expansion will
enable Southern to provide additional firm  transportation  services totaling 46
million  cubic feet per day to 11  customers in Georgia and  Tennessee.  If FERC
approval is received,  the in-service date for this firm transportation  service
is expected to be November 1997.

        In 1996,  Southern formed Destin  Pipeline  Company Inc., a wholly owned
subsidiary.  Destin filed an application with the FERC seeking  authorization to
construct,  own,  and operate a  large-diameter  interstate  pipeline  system to
transport approximately one billion cubic feet of gas per day from the deepwater
and corridor areas being developed in the eastern Gulf of Mexico for delivery to
pipeline interconnections in central Mississippi.  The estimated capital cost of
the  facilities  is $294  million.  Destin  Pipeline has  requested  preliminary
regulatory  approval  for  the  project  by  January  1997  so  that  commercial
agreements  can be entered  into in early 1997.  Engineering  would be completed
during 1997, and construction would begin in 1998. The projected in-service date
is scheduled for January 1999.  In addition to FERC  authorization,  Southern is
seeking, but does not yet have, contractual commitments to support the project.




<PAGE>


Operations
<TABLE>
<CAPTION>

                                                        Three Months                  Nine Months
                                                 Ended September 30,          Ended September 30,
                                                1996          1995           1996          1995
                                                                  (In Millions)
<S>                                           <C>            <C>            <C>           <C> 

Revenues:
   Gas sales                                   $ 39.8        $ 44.9         $154.4        $138.9
   Market transportation and
      storage                                    76.9          75.4          237.4         243.9
   Supply transportation                         12.5          12.7           35.8          38.6
   Other                                         13.0          41.5          180.8          63.2
                                                -----        ------         ------        ------
      Total Revenues                            142.2         174.5          608.4         484.6
                                               ------        ------         ------        ------

Costs and Expenses:
   Natural gas cost                              39.2          44.7          151.2         137.1
   Transition cost recovery                       7.3          32.3          160.4          40.7
   Operating and maintenance                     24.6          23.2           66.9          63.5
   General and administrative                    18.9          20.5           58.9          61.1
   Depreciation and amortization                 11.3          12.3           36.1          39.8
   Taxes, other than income                       4.7           4.8           14.0          14.9
                                                 ----        ------          -----        ------
                                                106.0         137.8          487.5         357.1
                                               ------        ------         ------        ------
      Operating Income                         $ 36.2        $ 36.7         $120.9        $127.5
                                               ======        ======         ======        ======

Equity in Earnings of
   Unconsolidated Affiliates                    $ 2.3        $  2.3          $ 7.2        $  7.1
                                                =====        ======          =====        ======

                                                              (Billion Cubic Feet)
Volumes:
   Intrastate gas sales                             2              1             6             5
   Market transportation                          133            143           483           448
                                                  ---            ---           ---           ---
      Total Market Throughput                     135            144           489           453
   Supply transportation                           77            101           242           288
                                                  ---            ---           ---           ---
      Total Volumes                               212            245           731           741
                                                  ===            ===           ===           ===

   Transition gas sales                            16             21            51            70
                                                  ===            ===           ===           ===
</TABLE>



Quarter-to-Quarter Analysis

        Operating  results for the third  quarter of 1996 were  relatively  flat
compared with the prior year.  Gas sales revenues and natural gas cost decreased
compared with the 1995 third quarter due to declining  transition gas sales from
supply remaining under contract  partially  offset by higher prices.  Both other
revenue and transition  cost recovery in the 1995 period include a $17.7 million
adjustment  related to the Customer  Settlement.  The  adjustment did not impact
operating income.  General and  administrative  expenses  decreased due to lower
employee benefit expenses, including stock-based compensation.  Depreciation and
amortization  in the 1996 period  includes a favorable  $0.9 million  adjustment
related to a change in the estimated life of leasehold improvements.

Year-to-Date Analysis

        Operating  results for the  nine-month  period  decreased  $6.6  million
primarily  because  incremental  revenues  from the sale of firm  transportation
capacity  were  collected in the 1995 period  prior to revised  rates going into
effect on March 1, 1995. The 1995 period also included  positive  adjustments to
reflect  actual  interruptible  transportation  revenue and cost recovery in the
first year of post Order No. 636  operations  and the reduction of a take-or-pay
liability.

        Gas sales revenues and natural gas cost increased compared with the 1995
period  reflecting  higher  gas  prices  on  transition  gas sales  from  supply
remaining under contract.  Supply transportation revenues decreased due to lower
supply-area  transportation  volumes.  Both other  revenue and  transition  cost
recovery  in the 1996  period  include  $163.9  million  recorded as a result of
Southern's  Customer  Settlement  becoming final.  Depreciation and amortization
decreased in the 1996 period due to lower rates  implemented  March 1, 1995, and
the adjustments discussed in the preceding paragraph.

Natural Gas Sales and Supply

        Sales by Southern of natural gas are  anticipated to continue only until
Southern's  remaining supply contracts expire, are terminated,  or are assigned.
As a result of Order No. 636,  Southern has terminated or renegotiated to market
pricing  substantially  all of its gas  supply  contracts  through  which it had
historically  obtained its long-term gas supply. Some of the remaining contracts
contain clauses  requiring  Southern  either to purchase  minimum volumes of gas
under the contract or to pay for it (take-or-pay clauses).  Although the cost of
gas under some of these  contracts is in excess of current  spot-market  prices,
Southern  currently is incurring no take-or-pay  liabilities  under any of these
contracts.  Two  market-priced  contracts entered into with Exxon Corporation in
1995 as part of a settlement of certain other gas purchase contracts account for
92  percent  and 85  percent  in 1996 and 1997,  respectively,  of the  purchase
commitments described below. Of such purchase  commitments,  the percent that is
priced in excess of current  spot-market  prices is 1 percent in 1996, 2 percent
in 1997,  8 percent in 1998,  and  substantially  all of the  volumes  for years
thereafter.  (See  Note 5 of  the  Notes  to  Condensed  Consolidated  Financial
Statements  for a  discussion  of price  differential  GSR  costs.)  Pending the
termination of these remaining supply contracts,  Southern has sold a portion of
its remaining gas supply to a number of its firm transportation  customers under
contracts  that have been extended  through  November 30, 1997. The remainder of
Southern's gas supply will continue to be sold on a month-to-month basis.



<PAGE>


     Southern's  purchase  commitments  under its remaining gas supply contracts
for the remainder of 1996 and years 1997 through 2000 are estimated as follows:

                                                                  Estimated
                                                                   Purchase
                                                                  Commitments
                                                                 (In Millions)

        1996                                                          $ 72
        1997                                                           137
        1998                                                            22
        1999                                                            22
        2000                                                            19

        These  estimates are subject to significant  uncertainty due both to the
number of  assumptions  inherent  in these  estimates  and to the wide  range of
possible  outcomes  for each  assumption.  None of the three major  factors that
determine purchase commitments  (underlying reserves,  future deliverability and
future price) is known today with certainty.

        See Note 5 of the Notes to Condensed  Consolidated  Financial Statements
for a discussion regarding Southern's rate proceedings to recover its GSR costs.

Rate Matters

        The Customer  Settlement  resolves,  as to all of  Southern's  customers
except  one  contesting  party  that  represents   approximately  2  percent  of
Southern's firm  transportation  volumes,  all of Southern's  previously pending
rate  proceedings  and  proceedings  to recover GSR and other  transition  costs
associated with the  implementation of Order No. 636. See Note 5 of the Notes to
Condensed  Consolidated  Financial  Statements  for a discussion of the Customer
Settlement and other rate matters.





<PAGE>


Other Income Statement Items
<TABLE>
<CAPTION>

                                                  Three Months                   Nine Months
                                               Ended September 30,           Ended September 30,
                                                1996          1995           1996          1995
                                                                 (In Millions)
<S>                                             <C>           <C>            <C>           <C>


Other Income-Other                              $ 4.9         $ 0.3          $ 5.7         $ 0.4
</TABLE>


        The increase in Other in the 1996  periods  compared to the same periods
in 1995 is  attributable  to the  recognition  of a $3.9 million gain on partial
termination of an interest rate swap and AFUDC-Equity associated with Southern's
pipeline expansion projects in the 1996 periods.
<TABLE>
<CAPTION>
<S>                                             <C>          <C>             <C>           <C>


Interest:
   Interest income                              $ 1.3        $  1.8          $ 4.6         $ 6.7
   Interest expense                              (8.4)        (10.7)         (30.7)        (31.6)
   Interest capitalized                           0.3             -            0.6           0.1
                                                 ----            ---          ----          ----

                                               $ (6.8)       $ (8.9)        $(25.5)       $(24.8)
                                               ======        ======         ======        ======
</TABLE>


        Net interest expense in 1996 decreased for the three-month  period,  but
increased slightly for the nine-month period.  Interest income decreased in both
periods due to lower average  balances of loans to affiliates.  Interest expense
decreased in both periods due to lower average reserve balances in 1996.  Partly
offsetting was an increase in interest  expense in both 1996 periods  related to
higher average debt levels with its parent.
<TABLE>
<CAPTION>

<S>                                            <C>           <C>            <C>           <C> 

Income Taxes                                   $ 13.7        $ 11.7         $ 41.4        $ 42.4
</TABLE>


        The  change in income  taxes in both  periods  was due to the  change in
pretax income.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS
<TABLE>
<CAPTION>

                                                                                 Nine Months
                                                                             Ended September 30,
                                                                             1996          1995
                                                                                (In Millions)
<S>                                                                         <C>            <C>


Operating Activities                                                        $ 90.1         $44.7
</TABLE>


        Cash flow from operations  increased $45.4 million  compared to the 1995
period. The 1996 period had much lower GSR payments,  primarily resulting from a
$45.0 million payment in February 1995.  Slightly offsetting were net refunds to
customers,  which were $15.0 million higher in the current period.  In addition,
the current  period  includes a tax refund of $8.9 million while the 1995 period
includes the payment of $13.0 million  related to prior period taxes.  Operating
results were essentially level in both periods.

        Other than the higher payments discussed above, the change in gas supply
realignment  costs was attributable to the recording of the Customer  Settlement
in the second  quarter  of 1996.  The change in  accounts  payable is  primarily
attributable  to lower volumes of natural gas  purchased in the current  period.
The change in inventories is due to Southern's system  expansions.  The increase
in other  current  assets  and  liabilities  is  primarily  attributable  to the
amortization of operating  prepayments in the current period.  In addition,  the
change in reserves for  regulatory  matters,  and other is due to the settlement
accounting, which were essentially offsetting among these captions.
<TABLE>
<CAPTION>


                                                                                 Nine Months
                                                                             Ended September 30,
                                                                             1996          1995
                                                                                (In Millions)
<S>                                                                         <C>            <C>


Investing Activities                                                        $(30.0)        $ 1.6
</TABLE>


        Investing activities required $30.0 million of net cash in 1996 compared
to  providing  $1.6  million  in  1995.  Due  to  system   expansions,   capital
expenditures  increased to $94.9  million in 1996 from $36.8 million in the 1995
period. Partly offsetting the increase in capital expenditures was a decrease in
Southern's  loans  to  its  parent (see  Note  4  of  the  Notes  to  Condensed
Consolidated Financial Statements).
<TABLE>
<CAPTION>

<S>                                                                         <C>           <C>

Financing Activities                                                        $(59.0)       $(43.2)
</TABLE>


     Financing  activities  used $59.0 million in 1996 compared to $43.2 million
in 1995. The change was due to loan  repayments by Southern to its parent in the
1996 period.

Capital Resources

        At September 30, 1996, Southern had available $50 million under lines of
credit.  Southern also has a shelf registration with the Securities and Exchange
Commission for up to $200 million in debt securities,  of which $100 million has
been issued.

        Southern expects to use cash from  operations,  borrowings in the public
or private  markets or loans from  affiliates to finance future capital or other
corporate expenditures.

FINANCIAL RISK MANAGEMENT

        Southern faces exposure to financial  market risks,  primarily  interest
rate  risk.  Use of  derivatives  to manage  this risk is  governed  by a set of
policies  approved  by the Sonat Board of  Directors.  These  policies  prohibit
speculative  transactions and require all  counterparties  to be approved by the
Board.  In  anticipation  of a future  borrowing,  Southern  has entered  into a
forward rate  agreement to hedge its interest rate risk (see Note 2 of the Notes
to Condensed Consolidated Financial Statements).

FORWARD LOOKING STATEMENTS

        Disclosures  provided in this Quarterly  Report contain  forward looking
statements   regarding  Southern's  future  plans,   objectives,   and  expected
performance.  These statements are based on assumptions  that Southern  believes
are  reasonable,  but are  subject  to a wide  range of  risks,  and there is no
assurance  that  actual  results  may  not  differ  materially.  Realization  of
Southern's  objectives and expected performance can 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 1. Legal Proceedings

        The  Company  reported in Item 5 of Part II of the  Company's  Report of
Form 10-Q for the quarter ended June 30,1996,  that it is one of many defendants
in an action styled Jack J. Grynberg, et al. v Alaska Pipeline Company, et al.


Item 6. Exhibits and Reports on Form 8-K

(a)     Exhibits(1)

Exhibit
Number                Exhibits

10      Amendatory  Agreement  dated August 23, 1996,  to Service  Agreement No.
        902470  dated  September 1, 1994,  as amended  March 1, 1995;  No.  
        904460 dated November 1, 1994,  as amended  June 1, 1995;  and Nos.  
        904461 and S20150  dated November 1, 1994, as amended March 1, 1995, 
        between Southern Natural Gas Company and  Atlanta Gas Light  Company,  
        filed as Exhibit 10 to Form 10-Q of Sonat Inc. for the quarter ended 
        September 30, 1996

12*            Computation of Ratio of Earnings to Fixed Charges

27*            Financial Data Schedules for the period ended September 30, 1996
------------
*  Filed herewith


(b)     Reports on Form 8-K

        The Company did not file any report on Form 8-K during the quarter ended
September 30, 1996.







     -------------------  (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 7, 1996                    By:   /s/ Thomas W. Barker, Jr.
       ---------------------------                    --------------------------
                                                         Thomas W. Barker, Jr.
                                                         Treasurer

                                                   (Principal Financial Officer)



Date:        November 7, 1996                    By:   /s/ Norman G. Holmes
       ---------------------------                    ---------------------
                                                      Norman G. Holmes
                                                   Vice President & Controller

                                                  (Principal Accounting Officer)