Page 1 of 29


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549
                                   FORM 10-Q



                   QUARTERLY REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934



 For the Quarter Ended September 30, 1998       Commission File Number 1-12899


                            SOUTH JERSEY GAS COMPANY
             (Exact name of registrant as specified in its charter)


            New Jersey                              22-0398330
      (State of incorporation)          (IRS employer identification no.)

                    1 South Jersey Plaza, Folsom, NJ  08037
          (Address of principal executive offices, including zip code)

                                 (609) 561-9000
              (Registrant's telephone number, including area code)


        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  [  ]


        As of November 5, 1998, there were 2,339,139 shares of the
        registrant's common stock outstanding.  All common shares are
        owned by South Jersey Industries, Inc., the parent company of
        South Jersey Gas Company.


                            Exhibit Index on page 29


                                 - Cover Page -




                        PART I    FINANCIAL INFORMATION



            Item 1.  Financial Statements  -  See Pages 3 through 14






                                     SJG-2



<TABLE>
                      SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

               CONDENSED STATEMENTS OF CONSOLIDATED LOSS  (UNAUDITED)
                      (In Thousands Except for Per Share Data)

<CAPTION>
                                                           Three Months Ended
                                                              September 30,
                                                      -----------------------------
                                                          1998             1997
                                                      ------------     ------------
<S>                                                   <C>              <C>
Operating Revenues:
  Utility                                                 $43,097          $49,635
  Other                                                       383              441
                                                      ------------     ------------
      Total Operating Revenues                             43,480           50,076
                                                      ------------     ------------
Operating Expenses:
  Gas Purchased for Resale                                 26,259           31,483
  Utility Operations                                       10,207           10,149
  Other Operations                                            418              404
  Maintenance                                               1,116            1,552
  Depreciation                                              4,318            4,027
  Federal and State Income Taxes                           (2,329)          (1,799)
  Other Taxes                                               1,575            3,149
                                                      ------------     ------------
      Total Operating Expenses                             41,564           48,965
                                                      ------------     ------------
Operating Income                                            1,916            1,111
                                                      ------------     ------------
Interest Charges:
  Long-Term Debt                                            3,646            3,971
  Short-Term Debt                                           1,269              248
  Other                                                       108              105
                                                      ------------     ------------
      Total Interest Charges                                5,023            4,324
                                                      ------------     ------------
Loss Before Preferred Dividend Requirements                (3,107)          (3,213)
Preferred Stock Dividend Requirements                          41               42
Preferred Securities Dividend Requirements                    731              731
                                                      ------------     ------------
      Net Loss Applicable to Common Stock                 ($3,879)         ($3,986)
                                                      ============     ============
Average Shares of Common Stock Outstanding                  2,339            2,339
                                                      ============     ============
Earnings Per Common Share                                  ($1.66)          ($1.70)
                                                      ============     ============
Dividends Declared Per Common Share                        $1.830           $1.635
                                                      ============     ============

<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>

                                     SJG-3

<TABLE>
                      SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

              CONDENSED STATEMENTS OF CONSOLIDATED INCOME  (UNAUDITED)
                      (In Thousands Except for Per Share Data)

<CAPTION>
                                                            Nine Months Ended
                                                              September 30,
                                                      -----------------------------
                                                          1998             1997
                                                      ------------     ------------
<S>                                                   <C>              <C>
Operating Revenues:
  Utility                                                $202,997         $233,523
  Other                                                     1,224            1,483
                                                      ------------     ------------
      Total Operating Revenues                            204,221          235,006
                                                      ------------     ------------
Operating Expenses:
  Gas Purchased for Resale                                117,860          133,304
  Utility Operations                                       29,726           29,000
  Other Operations                                          1,307            1,339
  Maintenance                                               3,979            4,553
  Depreciation                                             12,741           11,879
  Federal and State Income Taxes                            7,120            7,113
  Other Taxes                                               7,456           21,558
                                                      ------------     ------------
      Total Operating Expenses                            180,189          208,746
                                                      ------------     ------------
Operating Income                                           24,032           26,260
                                                      ------------     ------------
Interest Charges:
  Long-Term Debt                                           11,182           11,261
  Short-Term Debt                                           2,386            1,969
  Other                                                       344              314
                                                      ------------     ------------
      Total Interest Charges                               13,912           13,544
                                                      ------------     ------------
Income Before Preferred Dividend Requirements              10,120           12,716
Preferred Stock Dividend Requirements                         125              128
Preferred Securities Dividend Requirements                  2,192            1,202
                                                      ------------     ------------
      Net Income Applicable to Common Stock                $7,803          $11,386
                                                      ============     ============
Average Shares of Common Stock Outstanding                  2,339            2,339
                                                      ============     ============
Earnings Per Common Share                                   $3.34            $4.87
                                                      ============     ============
Dividends Declared Per Common Share                        $5.295           $4.906
                                                      ============     ============

<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>

                                     SJG-4


<TABLE>
                             SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

                              CONDENSED CONSOLIDATED BALANCE SHEETS
                                          (In Thousands)

<CAPTION>
                                                                  (Unaudited)
                                                                 September 30,         December 31,
                                                           -------------------------   -------------
                                                               1998         1997           1997
                                                           ------------ ------------   -------------
<S>                                                        <C>          <C>            <C>
Assets

Property, Plant and Equipment:
  Utility Plant, at original cost                             $654,961     $607,395        $619,489
    Accumulated Depreciation                                  (176,367)    (164,700)       (167,176)
  Gas Plant Acquisition Adjustment - Net                         1,869        1,944           1,926
                                                           ------------ ------------   -------------
      Property, Plant and Equipment - Net                      480,463      444,639         454,239
                                                           ------------ ------------   -------------
Available-for-Sale Securities                                      666            0               0
                                                           ------------ ------------   -------------
Current Assets:
  Cash and Cash Equivalents                                      1,134        3,684           6,596
  Accounts Receivable                                           12,680       18,720          30,116
  Unbilled Revenues                                              4,163        4,220          17,263
  Provision for Uncollectibles                                  (1,032)      (1,032)         (1,032)
  Natural Gas in Storage, average cost                          28,194       26,600          23,877
  Materials and Supplies, average cost                           3,973        3,954           4,509
  Prepaid Taxes                                                 13,599        8,513             566
  Prepayments and Other Current Assets                           1,698        2,386           1,661
                                                           ------------ ------------   -------------
      Total Current Assets                                      64,409       67,045          83,556
                                                           ------------ ------------   -------------
Accounts Receivable - Merchandise                                1,121        1,547           1,449
                                                           ------------ ------------   -------------
Regulatory and Other Non-Current Assets:
  Environmental Remediation Costs:
    Expended - Net                                              21,345       17,805          21,041
    Liability for Future Expenditures                           50,697       52,400          52,400
  Gross Receipts & Franchise Taxes                               3,696        4,139           4,028
  Income Taxes - Flowthrough Depreciation                       13,265       14,243          13,999
  Deferred Fuel Costs - Net                                      4,555          493           3,674
  Deferred Postretirement Benefit Costs                          5,679        5,872           6,150
  Other                                                          7,123        7,761           8,577
                                                           ------------ ------------   -------------
      Total Regulatory and Other Non-Current Assets            106,360      102,713         109,869
                                                           ------------ ------------   -------------
      Total Assets                                            $653,019     $615,944        $649,113
                                                           ============ ============   =============

<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>

                                     SJG-5

<TABLE>
                             SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

                              CONDENSED CONSOLIDATED BALANCE SHEETS
                                          (In Thousands)

<CAPTION>
                                                                  (Unaudited)
                                                                 September 30,          December 31,
                                                           -------------------------   -------------
                                                               1998         1997           1997
                                                           ------------ ------------   -------------
<S>                                                        <C>          <C>            <C>
Capitalization and Liabilities

Common Equity:
  Common Stock, Par Value $2.50 per share:
    Authorized - 4,000,000 shares
    Outstanding - 2,339,139 shares                              $5,848       $5,848          $5,848
  Other Paid-In Capital and Premium on Common Stock            102,817      102,817         102,817
  Retained Earnings                                             51,537       51,433          56,120
                                                           ------------ ------------   -------------
      Total Common Equity                                      160,202      160,098         164,785
                                                           ------------ ------------   -------------
Preferred Stock and Securities:
  Redeemable Cumulative Preferred - Par Value $100 per
   share,
    Authorized - 46,404, 47,304 and 47,304 shares
    Outstanding:
        Series A, 4.70% - 2,100, 3,000 and 3,000 shares            210          300             300
        Series B, 8.00% - 19,242 shares                          1,924        1,924           1,924
  Company-Guaranteed Mandatorily Redeemable
   Preferred Securities of Subsidiary Trust
   Par Value $25 per share, 1,400,000 shares
   Authorized and Outstanding                                   35,000       35,000          35,000
                                                           ------------ ------------   -------------
      Total Preferred Stock and Securities                      37,134       37,224          37,224
                                                           ------------ ------------   -------------
Long-Term Debt                                                 166,853      178,003         175,860
                                                           ------------ ------------   -------------
      Total Capitalization                                     364,189      375,325         377,869
                                                           ------------ ------------   -------------
Current Liabilities:
  Notes Payable                                                 94,800       28,600          45,900
  Current Maturities of Long-Term Debt                           8,876        8,876           8,876
  Accounts Payable                                              17,464       37,786          45,581
  Customer Deposits                                              5,552        5,795           5,871
  Environmental Remediation Costs                               16,037        7,735          14,373
  Taxes Accrued                                                  1,181          142             980
  Interest Accrued and Other Current Liabilities                 6,297        4,580           6,751
                                                           ------------ ------------   -------------
      Total Current Liabilities                                150,207       93,514         128,332
                                                           ------------ ------------   -------------
Deferred Credits and Other Non-Current Liabilities:
  Deferred Income Taxes - Net                                   81,641       80,225          81,847
  Investment Tax Credits                                         5,335        5,728           5,632
  Pension and Other Postretirement Benefits                     11,267       10,434          10,798
  Environmental Remediation Costs                               34,660       44,665          38,027
  Other                                                          5,720        6,053           6,608
                                                           ------------ ------------   -------------

      Total Deferred Credits and Other Non-Current
       Liabilities                                             138,623      147,105         142,912
                                                           ------------ ------------   -------------
Commitments and Contingencies

      Total Capitalization and Liabilities                    $653,019     $615,944        $649,113
                                                           ============ ============   =============

<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>

                                     SJG-6

<TABLE>
                             SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

                   CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS  (UNAUDITED)
                                          (In Thousands)

<CAPTION>
                                                                          Nine Months Ended
                                                                            September 30,
                                                                    -----------------------------
                                                                        1998             1997
                                                                    ------------     ------------
<S>                                                                 <C>              <C>
Cash Flows from Operating Activities:

  Net Income Applicable to Common Stock                                  $7,803          $11,386
  Adjustments to Reconcile Net Income to Cash Flows Provided by
   Operating Activities:
    Depreciation and Amortization                                        14,211           13,316
    Provision for Losses on Accounts Receivable                             932              948
    Revenues and Fuel Costs Deferred - Net                                 (881)             (89)
    Deferred and Non-Current Income Taxes and Credits - Net               3,160            2,499
    Environmental Remediation Costs - Net                                  (304)          (2,239)
    Changes in:
      Accounts Receivable                                                29,604           25,468
      Inventories                                                        (3,781)          (3,861)
      Prepayments and Other Current Assets                                  (38)            (824)
      Prepaid and Accrued Taxes - Net                                   (12,832)          (6,858)
      Accounts Payable and Other Accrued Liabilities                    (28,890)          (8,309)
  Other - Net                                                            (1,542)           2,870
                                                                    ------------     ------------
      Net Cash Provided by Operating Activities                           7,442           34,307
                                                                    ------------     ------------
Cash Flows from Investing Activities:
  Purchase of Available-for Sale Securities                                (666)               0
  Capital Expenditures, Cost of Removal and Salvage                     (39,517)         (35,587)
                                                                    ------------     ------------
      Net Cash Used in Investing Activities                             (40,183)         (35,587)
                                                                    ------------     ------------
Cash Flows from Financing Activities:
  Net Borrowings from (Repayments of) Lines of Credit                    48,900          (79,700)
  Proceeds from Issuance of Long-Term Debt                                    0           35,000
  Principal Repayments of Long-Term Debt                                 (9,007)          (4,461)
  Dividends on Common Stock                                             (12,386)         (11,475)
  Proceeds from Issuance of Preferred Securities                              0           35,000
  Repurchase of Preferred Stock                                             (90)             (90)
  Payments for Issuance of Long-Term Debt and Preferred Securities         (138)          (2,402)
  Additional Investment by Shareholder                                        0           25,623
                                                                    ------------     ------------
      Net Cash Provided by (Used in) Financing Activities                27,279           (2,505)
                                                                    ------------     ------------
Net Decrease in Cash and Cash Equivalents                                (5,462)          (3,785)

Cash and Cash Equivalents at Beginning of Period                          6,596            7,469
                                                                    ------------     ------------
Cash and Cash Equivalents at End of Period                               $1,134           $3,684
                                                                    ============     ============

<FN>
The accompanying footnotes are an integral part of the financial statements.
</FN>
</TABLE>

                                     SJG-7


        Notes to Condensed Consolidated Financial Statements (Unaudited)


Note 1.  Summary of Significant Accounting Policies:

     The Entity

     The condensed consolidated financial statements include the
accounts of South Jersey Gas Company (SJG) and its wholly owned
statutory trust subsidiary, SJG Capital Trust.  South Jersey
Industries, Inc. (SJI) owns all of SJG's outstanding common
stock.  Certain reclassifications have been made of previously
reported amounts to conform with classifications used in the
current year.

     Estimates and Assumptions

     SJG prepares its financial statements to conform with
generally accepted accounting principles.  This requires the
company to make estimates and assumptions affecting the amounts
reported in the financial statements and related disclosures.
Therefore, actual results may differ from those estimates.

     Regulation

     SJG is subject to the rules and regulations of the New Jersey
Board of Public Utilities (BPU) and maintains its accounts in
accordance with the prescribed Uniform System of Accounts of
that Board (See Note 2).

     New Accounting Pronouncements

     In June 1997, the Financial Accounting Standards Board (FASB)
issued FASB No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997.  This statement
establishes standards for reporting selected information about
operating segments in the company's interim and annual financial
statements.  SJG is evaluating whether adopting this statement
will change the company's presentation of financial information.
SJG adopted FASB No. 131 effective January 1, 1998; however, as
permitted by this statement, the company will not report segment
information in interim financial statements until 1999.

     Energy Tax Reform

     New Jersey adopted legislation reforming energy taxation
effective July 14, 1997.  The new law eliminated the Gross
Receipts and Franchise Tax (GRAFT), amounting to approximately
13% of utility revenue, and replaced it with a combination of
taxes.  Beginning January 1, 1998, retail sales of natural gas

                                     SJG-8

and electricity and utility services, including transportation,
are subject to the 6% State Sales and Use Tax (SUT).  Gas and
electric utilities are also subject to the 9% State Corporation
Business Tax (CBT) on income before taxes.  To bridge the
revenue gap created by the new tax law, the state imposed a
Transitional Energy Facilities Assessment (TEFA) on volumes of
gas sold and transported.  The TEFA will be phased out over five
years beginning January 1, 1999 and ending January 1, 2003.  The
revised tax policy is expected to eliminate tax differences
between utility and nonutility suppliers, providing fair
competition and lower energy costs for consumers.  The new
legislation does not materially affect the company's financial
position, operating results or liquidity (See Note 2).  However,
since the SUT is not included in reported utility revenues or
tax expense as GRAFT was previously, there are equal reductions
in these line items on the Condensed Statements of Consolidated
Income.

Note 2.  Regulatory Matters:

     On July 31, 1996, 1997 and 1998, SJG filed with the BPU to
recover an increase in remediation costs expended from August
1995 through July 1998 totaling $4.5 million.  The BPU approved
the 1996-1997 Remediation Adjustment Clause filing on October 9,
1998.  The 1997-1998 RAC filing has been updated and the results
were included in the 1998-1999 RAC filing.  Both filings are
still pending at the BPU.

     On January 27, 1997, the BPU granted SJG a total rate increase
of $10.3 million.  The $6.0 million base rate portion of the
increase was based on a 9.62% rate of return on rate base, which
included an 11.25% return on common equity.  The majority of
this increase comes from residential and small commercial
customers.  Part of the increase is recovered from new
miscellaneous service fees which charge specific customers for
costs they cause SJG to incur.  Additionally, SJG's threshold
for sharing pre-tax margins generated by interruptible and
off-system sales and transportation (Sharing Formula) was
increased from $4.0 million to $5.0 million.  SJG keeps 100% of
pre-tax margins up to the threshold level and 20% of such
margins above that level.  Later in 1997, the $5.0 million
threshold was increased by $500,000 which is the annual revenue
requirement associated with the completion of construction on a
specified pipeline interconnection.  At the beginning of 1999,
this $5.5 million threshold will increase by another $2.3
million, also representative of the annual revenue requirement
associated with major construction projects.  On October 9,
1998, the BPU approved a revision to the Sharing Formula as part
of an agreement to modify SJG's Temperature Adjustment Clause
(TAC).  The revision credits the first $750,000 above the
applicable threshold level to the Levelized Gas Adjustment
Clause (LGAC) customers.  Thereafter, SJG keeps 20% of the
pre-tax margins as it has historically.

     As part of the tariff changes approved in the rate case, SJG
began its pilot program in April 1997, giving residential
customers a choice of gas supplier.  During the initial
enrollment period, which ended June 30, 1997, nearly 13,000
residential customers applied for this service.  SJG began
transporting gas for these customers on August 1, 1997.  On June
26, 1998, the BPU expanded the number of potential participants

                                     SJG-9

to 25,000.  There were 14,841 participants as of September 30,
1998.  Participant's bills are reduced for cost of gas charges
and applicable taxes.  The resulting decrease in revenues is
offset by a corresponding decrease in gas costs and taxes under
SJG's BPU-approved fuel clause.    While the program results in
a reduction in utility revenues, it does not affect the
company's net income, financial condition or margins.   As part
of the tariff changes approved in the rate case, SJG further
expanded the choices available to commercial and industrial
customers, including a new transportation tariff providing
savings to qualified customers.

     On May 13, 1997, SJG filed to recover additional
postretirement benefit costs of approximately $1.3 million
annually.  This recovery was approved on December 17, 1997 and
began January 1, 1998.

     On September 9, 1997, SJG filed with the BPU to adjust rates
by replacing the GRAFT with SUT, CBT and TEFA components (See
Note 1).  The new rates became effective January 1, 1998 on an
interim basis and were made final effective July 13, 1998.

     In September 1996, SJG filed to reduce rates through the
1996-1997 LGAC reflecting a $1.4 million decrease in natural gas
costs.  Updated 1996-1997 LGAC year results were rolled into the
1997-1998 LGAC which was filed with the BPU in September 1997.

     On September 12, 1997 and September 8, 1998, SJG made its
annual LGAC, TAC and Demand Side Management Clause (DSMC)
filings with the BPU.  The LGAC and DSMC cover the period
November 1 through October 31 of each year.  The TAC period runs
from October 1 through May 31.  In the 1997-1998 filing, the
company requested a $4.7 million increase in the annual LGAC
recovery which includes the 1996-1997 LGAC year results referred
to above.  SJG updated this amount to $7.0 million in August
1998 and included this amount in its 1998-1999 LGAC filing.  The
1998-1999 LGAC filing requested a decrease in rates of $414,000.
The company also requested resolution of prior year filings
along with the 1998-1999 filing.  All filings are still pending
at the BPU.

     On March 5, 1998, the BPU approved new appliance service
rates.  The new rates are competitive with those of other
service providers in New Jersey and are designed to increase
earnings and cash flows to SJG over the current rates.  In April
1998, the BPU also authorized SJG to offer new appliance service
contract plans and to service electric air conditioners.

     On June 8, 1998, SJG filed a petition with the BPU requesting
a change in the way in which the TAC operates.  The request was
granted on October 9, 1998.  As a result, SJG will experience
reduced fluctuations in income when temperatures are warmer or
colder than normal.

                                     SJG-10

Note 3.  Related Party Transactions:

     SJG contracted with R&T Group, Inc. (R&T), SJI's wholly owned
subsidiary, for general utility construction and environmental
remediation services costing approximately $ -0- and $1,901,000
for the nine months ended September 30, 1998 and 1997,
respectively.  The amounts payable to R&T relating to these
services were $ -0-  and $10,500 at September 30, 1998 and 1997,
respectively.  SJI discontinued the operations and sold the
assets of R&T during the first half of 1997.

     SJG sells natural gas for resale to South Jersey Energy
Company (SJE), SJI's wholly owned subsidiary.  These sales
comply with Section 284.402 of the Regulations of the Federal
Energy Regulatory Commission (FERC).  Sales to SJE were
approximately $39,000 and $ -0- for the three months ended and
$331,800 and $ -0- for the nine months ended September 30, 1998
and 1997, respectively.

Note 4.  Income and Other Taxes:

     SJG is included in the consolidated Federal Income tax return
filed by SJI and files on a separate return basis for State
Income Tax purposes.  The aggregate amounts of current and
deferred tax (credit) expense for the three and nine months
ended September 30, 1998 and 1997 are shown below (in thousands):


                                Three Months Ended      Nine Months Ended
                                   September 30,           September 30,
                               ---------------------   ---------------------
                                  1998       1997         1998       1997
                               ---------- ----------   ---------- ----------
Federal:
  Current                            $47    ($2,675)      $2,437     $4,614
  Deferred                        (1,721)       975        3,059      2,796
Investment Tax Credits               (99)       (99)        (297)      (297)
State:
  Current                           (446)         0        1,523          0
  Deferred                          (110)         0          398          0
                               ---------- ----------   ---------- ----------
      Total Federal and State
       Income Taxes              ($2,329)   ($1,799)      $7,120     $7,113
                               ========== ==========   ========== ==========


     The significant components of other taxes reflected in the
Condensed Statements of Consolidated Income for the three and
nine months ended September 30, 1998 and 1997 are shown below
(in thousands):

                                     SJG-11


                                Three Months Ended      Nine Months Ended
                                   September 30,           September 30,
                               ---------------------   ---------------------
                                  1998       1997         1998       1997
                               ---------- ----------   ---------- ----------
TEFA                                $918         $0       $5,278         $0
GRAFT                                110      2,577           13     19,304
Other Taxes                          547        572        2,165      2,254
                               ---------- ----------   ---------- ----------
      Total Other Taxes           $1,575     $3,149       $7,456    $21,558
                               ========== ==========   ========== ==========


     During the three and nine months ended September 30, 1998, SJG
recorded an additional $1.4 million and $9.0 million,
respectively, for SUT on utility services through its Condensed
Consolidated Balance Sheet.  Such amounts are not included in
reported revenues or tax expense as SJG only acts as agent for
the collection of SUT (See Note 1).

Note 5.  Capitalization:

     SJG's First Mortgage Indenture, as supplemented, restricts the
company as to the amount of cash dividends or other
distributions it may pay on its common stock.  SJG had
approximately $49.6 million in retained earnings at September
30, 1998 that were free of these restrictions.

     On March 26, 1997, SJG received $25.6 million in contributions
of capital from SJI.  SJG credits capital contributions to Other
Paid-In Capital and Premium on Common Stock.  SJG made no other
changes in common stock during 1998 and 1997.

Note 6.  Commitments and Contingencies:

     Construction Commitments

     The estimated cost of construction and environmental
remediation programs for the company in 1998 will total $71.6
million.  SJG has made certain commitments regarding these
programs.

     Gas Supply Contracts

     SJG has entered into long-term contracts for natural gas
supplies, firm transportation, and firm gas storage service.
The earliest that any of the gas supply contracts expire is
October 2000.  All of the transportation and storage service
agreements between SJG and its interstate pipeline suppliers
were made under FERC approved tariffs.  SJG's cumulative
obligation for demand charges and reservation fees paid to its

                                     SJG-12

suppliers for all of these services is approximately $4.9
million per month, which SJG recovers on a current basis through
the LGAC.

     Pending Litigation

     SJG is subject to claims which arise in the ordinary course of
business and other legal proceedings.  The company sets up
reserves when these claims become apparent.  SJG also maintains
insurance and records probable insurance recoveries relating to
outstanding claims.

     A group of Atlantic City casinos filed a petition with the BPU
on January 16, 1996 alleging overcharges of over $10.0 million,
including interest.  A settlement has been arrived at in this
litigation, under which SJG will make no payments.  The group of
casinos have issued general releases to SJG, and on September 4,
1998 the petition was withdrawn.

     Environmental Remediation Costs

     SJG incurred and recorded costs for environmental clean up of
sites where SJG or predecessor companies operated gas
manufacturing plants.  SJG terminated manufactured gas
operations at all sites more than 35 years ago.

     Since the early 1980s, SJG has recorded environmental
remediation costs of $91.8 million.  The company has spent $41.1
million as of September 30, 1998.  SJG, with the assistance of
an outside consulting firm, estimates that future costs to clean
up the sites will range from $50.7 million to $150.6 million.
The company recorded the lower end of this range as a liability.
It is reflected on the Condensed Consolidated Balance Sheet
under the captions "Current Liabilities" and "Deferred Credits
and Other Non-Current Liabilities."  SJG's recorded
environmental remediation costs do not directly affect earnings
because those costs are deferred and recovered through rates
over 7-year amortization periods as allowed by the BPU.  SJG did
not adjust the accrued liability for future insurance
recoveries, which the company is pursuing.  SJG received $4.2
million of insurance recoveries as of September 30, 1998.  SJG
used these proceeds to offset related legal fees and to reduce
the balance of deferred environmental remediation costs.
Recorded amounts include estimated costs based on projected
investigation and remediation work plans using existing
technologies.  Actual costs could differ from the estimates due
to the long-term nature of the projects, changing technology,
government regulations and site specific requirements.

     As a result of the 7-year Remediation Adjustment Clause (RAC)
recovery mechanism, SJG does not expense environmental
remediation costs when incurred and defers costs to be
recovered.  SJG has two regulatory assets associated with
environmental costs.  The first regulatory asset is titled
"Environmental Remediation Cost: Expended - Net."  These
expenditures represent what was actually spent to clean up
former gas manufacturing plant sites.  These costs meet the
requirements of FASB No. 71, "Accounting for the Effects of

                                     SJG-13

Certain Types of Regulation."  The BPU allowed SJG to recover
these expenditures through July 1996 and petitions to recover
these costs through July 1998 are pending (See Note 2).

     The other regulatory asset titled "Environmental Remediation
Cost:  Liability for Future Expenditures" relates to estimated
future expenditures determined under the guidance of FASB No. 5,
"Accounting for Contingencies."  This amount, which relates to
former manufactured gas plant sites, was recorded as a deferred
debit with the corresponding amount reflected on the balance
sheet under the captions "Current Liabilities" and "Deferred
Credits and Other Non-Current Liabilities."  The deferred debit
is a regulatory asset under FASB No. 71 because the BPU's
intent, as evidenced by its current practice, is to allow SJG to
recover the deferred costs after they are expended.

     SJG files with the BPU to recover these costs in rates through
its RAC.  The BPU has consistently allowed the full recovery
over 7-year periods, and SJG believes this will continue.  As of
September 30, 1998, SJG's unamortized remediation costs of $21.3
million are reflected on the balance sheet under the caption
"Regulatory and Other Non-Current Assets."  Since BPU approval
of the RAC in August 1992, SJG has recovered $15.6 million
through rates as of September 30, 1998 (See Note 2).

Note 7.  Subsequent Events:

     On October 14, 1998, SJI and Conectiv announced plans for a
joint customer account services venture that will begin to
provide meter reading services in southern New Jersey by the end
of the year.  The new venture will allow both companies to
capitalize on the synergies that exist because their companies'
territories overlap.  Customers should benefit from the
companies' collective ability to reduce meter reading costs.

     On October 21, 1998, SJG issued $30.0 million of debt under a
Medium Term Note Program established October 5, 1998.  Under
this program, $10.0 million of notes were issued at 6.12%,
maturing in 2010, and $20.0 million of notes were issued at
7.125%, maturing in 2018.

                                     SJG-14

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


Overview

     South Jersey Gas Company (SJG) is a natural gas distribution
company serving 263,883 customers at September 30, 1998,
compared with 257,587 customers at September 30, 1997.  SJG also
makes off-system sales of natural gas on a wholesale basis to
various customers on the interstate pipeline system and
transports natural gas purchased directly from producers or
suppliers for its own sales and for some of its customers.
South Jersey Industries, Inc. owns all of the common stock of
SJG.

Forward-Looking Statements

     This report contains certain forward-looking statements
concerning projected future financial performance, future
operating performance, future plans and courses of action and
future economic conditions.  All statements in this report other
than statements of historical fact are forward-looking
statements.  These forward-looking statements are made based
upon management's expectations and beliefs concerning future
events impacting the company and therefore involve a number of
risks and uncertainties.  Management cautions that
forward-looking statements are not guarantees and that actual
results could differ materially from those expressed or implied
in the forward-looking statements.

     There are a number of factors that could cause the company's
actual results to differ materially from those anticipated,
which include, but are not limited to, the following:  general
economic conditions on an international, federal, state and
local level; weather conditions in the company's marketing
areas; regulatory and court decisions; competition in the
company's regulated activities; the availability and cost of
capital; costs and effects of unanticipated legal proceedings,
Year 2000 related costs or operating problems and environmental
liabilities; and changes in business strategies.

Competition

     SJG's franchises are non-exclusive.  Currently no other utility
provides retail gas distribution services within its territory.
SJG does not expect any other utilities to do so in the
foreseeable future because of the extensive investment required
for utility plant and related costs.  SJG competes with oil,
propane and electricity suppliers for residential, commercial
and industrial users.  The market for natural gas sales is
subject to competition as a result of deregulation.  SJG has
enhanced its competitive position while maintaining its margins
by using an unbundled tariff which allows the company to recover
its full cost of service, except for the variable cost of the
gas commodity, when engaging in the transportation of gas for
its customers.  Under this tariff, SJG derives substantially all
of its profits from the transportation rather than the sale of
the commodity.  SJG's commercial and industrial customers can

                                     SJG-15

choose their supplier while SJG recovers its cost of service and
fixed gas costs primarily through its transportation service.
In April 1997, SJG initiated its New Jersey Board of Public
Utilities (BPU) approved pilot program giving some residential
customers a choice of gas suppliers (See "Pilot Program - Choice
of Gas Supplier").  SJG believes it has been a leader in
addressing the changing marketplace, while maintaining its focus
on being a low-cost provider of natural gas and energy services.

Pilot Program - Choice of Gas Supplier

     In April 1997, SJG began its BPU-approved pilot program giving
residential customers a choice of gas supplier.  During the
initial enrollment period, which ended June 30, 1997, nearly
13,000 residential customers applied for this service.  SJG
began transporting gas for these customers on August 1, 1997.
On June 26, 1998, the BPU expanded the number of potential
participants to 25,000.  There were 14,841 participants as of
September 30, 1998.  Participants' bills are reduced for cost of
gas charges and applicable taxes.  The resulting decrease in
revenues is offset by a corresponding decrease in gas costs and
taxes under SJG's BPU-approved fuel clause.    While the program
results in a reduction in utility revenues, it does not affect
SJG's net income, financial condition or margins.  Also, SJG
further expanded the choices available to commercial and
industrial customers, including a new transportation tariff
providing savings to qualified customers.

Energy Adjustment Clauses

     SJG's tariff includes a Levelized Gas Adjustment Clause (LGAC),
a Temperature Adjustment Clause (TAC), a Remediation Adjustment
Clause (RAC) and a Demand Side Management Clause (DSMC).  These
clauses permit adjustments for changes in gas supply costs,
reduce the impact of extreme fluctuations in temperatures on SJG
and its customers, recover costs for the remediation of former
gas manufacturing plants and recover costs associated with its
conservation plan, respectively.  The BPU-approved LGAC, RAC and
DSMC adjustments are made to match revenues and expenses.  TAC
adjustments do affect revenue, income and cash flows since
colder than normal weather can generate credits to customers,
while warmer than normal weather can result in additional
billings to customers.  TAC adjustments related to the 1997-1998
TAC year did not materially impact the financial statements for
1998.

Status of Year 2000 Conversion

     The company prepared a Year 2000 Impact and Assessment study
and developed a plan for program modification for software and
embedded technology.  An outside service was used to identify both
informational and logic date variables within the programming codes.
This service was completed and expensed in 1997.  Presently, the
company is revising the affected programming codes.  As of September
30, 1998, approximately 64% of the programming code was revised.
All revisions are scheduled to be completed by early 1999,
providing the remainder of 1999 for testing.  The company believes
that all embedded technology relating to its distribution systems is
Y2K compliant.  The conversion costs are estimated at $0.4 million of
which approximately $0.28 million was spent as of September 30, 1998.
Vendors who provide third party software have been contacted and 28 of
31 have indicated that they are now compliant.  The company is also in

                                     SJG-16

the process of securing written verification from its key
product and service vendors to ensure their compliance.
Approximately 50% of all product and service vendors and 80% of
those vendors deemed key suppliers have to date verified that they
will be compliant.  Of the company's two principal gas suppliers, one
has indicated Y2K compliance and the other has yet to respond.

     The worst case scenarios facing SJG involve the impact on the
company's distribution system and general office activities of the
loss of telecommunications and or electrical power as a result of
a Y2K problem with the provider's system.  These events in
themselves do not pose a problem if the duration of loss is less
than 72 hours.  All company sites have electrical generation backup
and utilize two phone carriers should one fail due to a Y2K problem.
The company also has both a private voice and data radio systems
which allow it to monitor remote stations manually.

     Based upon the nature of SJG's operating and information
systems and the current advanced state of planning and
remediation, the company does not anticipate any material
difficulty in completing full year 2000 compliance and any
problems that do arise are expected to be immaterial or
insignificant.

Results of Operations - Three and Nine Months Ended September 30, 1998
Compared to Three and Nine Months Ended September 30, 1997

Operating Revenues

     Revenues decreased $6.6 million for the third quarter of 1998
as compared to the same period in 1997.  The decrease for the
third quarter comparison was primarily due to state tax reform
effective January 1998 which lowered the tax component contained
in reported revenue and by customers using increased levels of
firm transportation service in lieu of firm gas sales.  This
decrease was partially offset by customer growth.

     The lower tax component in reported revenue was offset by a
reduction in Other Taxes (See Notes 1 and 6).  South Jersey Gas'
tariffs are structured such that profits are derived from
transportation, not from the sale of the commodity.
Consequently, while both the tax reform and the switch to firm
transportation reduced total revenues, neither impacted
profitability.

     Revenues decreased $30.8 million for the first nine months of
1998, as compared to the prior year period, primarily due to
lower firm sales resulting from weather that was 16.8% warmer.
The results were also impacted by the same factors that effected
the quarterly results.

Gas Purchased for Resale

     Gas purchased for resale decreased $5.2 million and $15.4
million for the three and the nine month periods ending
September 30, 1998 compared with comparable 1997 periods.  The
nine month decrease was principally due to weather related
decreased sales volumes.  Increased levels of firm
transportation versus firm gas sales accounted for a portion of
the decrease in both periods.  Sources of gas supply include
both contract and open-market purchases.  SJG is responsible for
securing and maintaining its own gas supplies to serve its
customers.

                                     SJG-17

     SJG has entered into long-term contracts for natural gas
supplies, firm transportation, and firm gas storage service.
The earliest that any of these contracts expire is October 2000.
All of the transportation and storage service agreements
between SJG and its interstate pipeline suppliers were made
under Federal Energy Regulatory Commission (FERC) approved
tariffs.  SJG's cumulative obligation for demand charges and
reservation fees paid to its suppliers for all of these services
is approximately $4.9 million per month, which SJG recovers on a
current basis through the LGAC.

Operations

     A summary of net changes in utility operations for 1998
compared with 1997 is as follows (in thousands):


                                         Period Ended September 30,
                                        ----------------------------
                                         Three Months   Nine Months
                                        1998 vs. 1997  1998 vs. 1997
                                        -------------  -------------
Other Production Expense                         $1             $4
Transmission                                     33             52
Distribution                                   (130)          (337)
Appliance Service                               316            543
Customer Accounts and Services                   (3)           282
Sales                                           (24)           (34)
Administration and General                     (135)           216
Other                                            14            (32)
                                        -------------  -------------
                                                $72           $694
                                        =============  =============


     Distribution costs decreased for both periods in 1998
principally due to decreased meter exchange activity.  The majority
of the increase in Appliance Service expense comparisons was due to
expenditures on advertising.  Customer Accounts and Services
costs increased in the first nine months of 1998 principally due
to an increase in payroll expense.  The payroll expense increase
was offset in the third quarter by a reduction in bad debt
expense.  Administrative and General costs increased for the
first nine months of 1998 principally due to increased employee
benefits costs, however, these costs were more than offset
during the third quarter by reductions in expenses for
consultants and regulatory activities.

Other Operating Expenses

     A summary of principal changes in other operating expenses for
1998 compared with 1997 is as follows (in thousands):

                                     SJG-18


                                         Period Ended September 30,
                                        ----------------------------
                                        Three Months    Nine Months
                                        1998 vs. 1997  1998 vs. 1997
                                        -------------  -------------
Maintenance                                   ($436)          (574)
Depreciation                                    291            862
Federal and State Income Taxes                  530              7
Other Taxes                                  (1,574)       (14,102)


     The decrease in maintenance expense is principally due to
utility production plant maintenance, which includes the
amortization of environmental remediation costs (such decreases
are offset by lower revenue recovery under SJG's RAC).
Depreciation is higher principally due to increased investment
in property, plant and equipment.  Federal and State Income Tax
changes reflect the impact of changes in pre-tax income and the
impact of the energy tax reform legislation discussed under
Operating Revenues.  Other Taxes decreased because of
the energy tax reform legislation.

Interest Charges

     Interest charges increased in 1998 by $.7 million and $.4
million for the three and nine month periods, respectively,
versus the comparable 1997 periods.  Interest charges were
increased for the three and nine month periods due to carrying
higher levels of debt partially offset by lower interest rates.
Short-term debt levels were reduced by the application of a
$25.6 million cash equity infusion to SJG from SJI and the
application of the net proceeds from the sale of the Mandatorily
Redeemable Preferred Securities in May 1997.

Preferred Securities Dividend Requirements

     Preferred Dividends increased in 1997 due to the issuance of
$35.0 million of 8.35% SJG-guaranteed Mandatorily Redeemable
Preferred Securities in May 1997 (See "Capital Resources").

Net Income Applicable to Common Stock

     The details affecting net income and earnings per common share
are discussed under the appropriate captions above.

Liquidity

     The seasonal nature of gas operations, the timing of
construction and remediation expenditures and related permanent
financing, as well as mandated tax and sinking fund payment
dates require large short-term cash requirements.  These are
generally met by cash from operations and short-term lines of

                                     SJG-19

credit.  The company maintains short-term lines of credit with a
number of banks, aggregating $120.0 million of which $25.2
million was available at September 30, 1998.  The credit lines
are uncommitted and unsecured with interest rates below the
prime rate.

     The changes in cash flows from operating activities are as
follows (in thousands):


                                                     Nine Months Ended
                                                       September 30,
                                                       1998 vs. 1997
                                                      ---------------
Increases/(Decreases):
Net Income                                                 ($3,583)
Depreciation and Amortization                                  895
Provision for Losses on Accounts Receivable                    (16)
Revenues and Fuel Costs Deferred - Net                        (792)
Deferred and Non-Current Income Taxes and
 Credits - Net                                                 661
Environmental Remediation Costs - Net                        1,935
Accounts Receivable                                          4,136
Inventories                                                     80
Prepayments and Other Current Assets                           786
Prepaid and Accrued Taxes - Net                             (5,974)
Accounts Payable and Other Accrued Liabilities             (20,581)
Other - Net                                                 (4,412)
                                                       ------------
      Decrease in Net Cash from Operating Activities      ($26,865)
                                                       ============


     Depreciation and Amortization are non-cash charges to income
and do not impact cash flow.  Changes in depreciation cost
reflect the effect of additions and reductions to fixed assets.

     Increases in Revenues and Fuel Costs Deferred - Net reflect the
impact of overcollection of fuel costs or the recovery of
previously deferred fuel costs.  Decreases reflect the impact of
payments or credits to customers for amounts previously
overcollected and the undercollection of fuel costs resulting
from increases in natural gas costs.

     Increases in Deferred and Non-Current Federal Income Taxes and
Credits - Net represent the excess of taxes accrued over amounts
paid.  Decreases reflect the impact of taxes paid in excess of
amounts accrued.  Generally, deferred income taxes related to
deferred fuel costs will be paid in the next year.

                                     SJG-20

     Changes in Environmental Remediation Costs - Net represent the
difference between remediation expenditures and amounts
collected under the RAC and insurance recoveries.

     Changes in Accounts Receivable are generally weather and price
related.  Changes impact cash flows when collected in subsequent
periods.

     Changes in Inventories reflect the impact of seasonal
requirements, temperatures and price changes.

     Changes in Prepaid and Accrued Taxes - Net reflect the impact
of changes between taxes paid and taxes accrued.  However,
significant timing differences exist in cash flows during the
year.  In 1997, SJG paid the full year's Gross Receipts &
Franchise Tax (GRAFT) on April 1 and amortized the remaining
prepaid tax over the remainder of the year on the basis of gas
volumes sold.

     As stated in Note 1, on January 1, 1998, the GRAFT was replaced
with a 6% State Sales and Use Tax (SUT), a 9% State Corporate
Business Tax (CBT) on income before taxes and a Transitional
Energy Facilities Assessment (TEFA) on volumes of gas sold and
transported.  The TEFA will be phased out over five years
beginning January 1, 1999.  Approximately 50% of the new taxes
are paid in monthly installments during the first six months of
the year and the principal portion of the remaining taxes are
paid on June 25, 1998, and on May 15 of each year thereafter.
SJG uses short-term borrowings to make these tax payments which
result in a temporary increase in the short-term debt level.

     Changes in Accounts Payable and Other Accrued Liabilities
principally reflect a change in gas inventory purchasing
practices mandated by the BPU and the impact of timing
differences between the accrual and payment of costs.

Regulatory Matters

     Rate Actions

     On January 27, 1997, the BPU granted SJG a total rate increase
of $10.3 million.  The $6.0 million base rate portion of the
increase was based on a 9.62% rate of return on rate base, which
included an 11.25% return on common equity.  The majority of
this increase comes from residential and small commercial
customers.  Part of the increase is recovered from new
miscellaneous service fees which charge specific customers for
costs they cause SJG to incur.  Additionally, SJG's threshold
for sharing pre-tax margins generated by interruptible and
off-system sales and transportation (Sharing Formula) was
increased from $4.0 million to $5.0 million.  SJG keeps 100% of
pre-tax margins up to the threshold level and 20% of such
margins above that level.  Later in 1997, the $5.0 million
threshold was increased by $500,000 which is the annual revenue
requirement associated with the completion of construction on a
specified pipeline interconnection.  At the beginning of 1999,
this $5.5 million threshold will increase by another $2.3
million, also representative of the annual revenue requirement
associated with major construction projects.  On October 9,
1998, the BPU approved a revision to the Sharing Formula as part

                                     SJG-21

of an agreement to modify SJG's Temperature Adjustment Clause
(TAC).  The revision credits the first $750,000 above the
applicable threshold level to the Levelized Gas Adjustment
Clause (LGAC) customers.  Thereafter, SJG keeps 20% of the
pre-tax margins as it has historically.

     Rates of return are calculated by weighting SJG's individual
capital cost rates by the proportion of each respective type of
capital.  This requires selecting appropriate capital structure
ratios and determining the cost rate for each capital component
as determined in each rate proceeding.

     In setting a rate of return, the BPU must provide a utility and
its investors with a return that is commensurate with the risk
to which the invested capital is exposed so that the utility has
access to the capital required to meet its public service
responsibility.

     Also on January 27, 1997, the BPU approved SJG's request for a
$2.5 million revenue reduction through the TAC.  This is the
standard BPU procedure used to credit customers with previously
collected revenues which were in excess of those allowed by the
TAC (See "Energy Adjustment Clauses").  This revenue reduction
reflects the TAC's normal operation, as does the BPU's
confirmation of the decrease.

     On September 9, 1997, SJG filed with the BPU to adjust rates by
replacing the GRAFT with SUT, CBT and TEFA components (See
"Liquidity").  The new rates became effective January 1, 1998 on
an interim basis and were made final effective July 13 , 1998.

     In September 1996, SJG filed to reduce rates through the
1996-1997 LGAC reflecting a $1.4 million decrease in natural gas
costs.  Updated 1996-1997 LGAC year results were rolled into the
1997-1998 LGAC which was filed with the BPU in September 1997.

     On September 12, 1997, and September 8, 1998, SJG made its
annual LGAC, Temperature Adjustment Clause (TAC) and Demand Side
Management Clause (DSMC) filings with the BPU.  The LGAC and
DSMC cover the period November 1 through October 31 of each
year.  The TAC period runs from October 1 through May 31.  In
the 1997-1998 filing, the company requested a $4.7 million
increase in the annual LGAC recovery which includes the
1996-1997 LGAC year results referred to above.  SJG updated this
amount to $7.0 million in August 1998 and included this amount
in its 1998-1999 LGAC filing.  The 1998-1999 LGAC filing
requested a decrease in rates of $414,000.  The company also
requested resolution of prior year filings along with the
1998-1999 filing.  All filings are still pending at the BPU.

     On March 5, 1998, the BPU approved new appliance service rates.
The new rates are competitive with those of other service
providers in New Jersey and are designed to increase earnings
and cash flows to SJG over the current rates.  In April 1998,
the BPU also authorized SJG to offer new appliance service
contract plans and to service electric air conditioners.

                                     SJG-22

     On June 8, 1998, SJG filed a petition with the BPU requesting a
change in the way in which the TAC operates.  The request was
granted on October 9, 1998.  As a result, SJG will experience
reduced fluctuations in income when temperatures are warmer or
colder than normal.

     On July 31, 1998, SJG filed a motion to further unbundle
natural gas service.  The BPU's Order of June 26, 1998, which
expanded the current residential transportation pilot program,
directed SJG to file a proposal in which full residential
unbundling would take place on or before January 1, 1999.  Many
of the issues related to residential unbundling also relate to
the commercial and industrial transportation program.
Therefore, the motion encompasses issues surrounding both
programs.  A proposal to completely unbundle natural gas service
on SJG's system is expected to be filed with the BPU in November
1998.

     Environmental Remediation

     SJG incurred and recorded costs for environmental clean up of
sites where SJG or predecessor companies operated gas
manufacturing plants.  SJG terminated manufactured gas
operations at all sites more than 35 years ago.

     Since the early 1980s, SJG has recorded environmental
remediation costs of $91.8 million.  The company has spent $41.1
million as of September 30, 1998.  SJG, with the assistance of
an outside consulting firm, estimates that future costs to clean
up the sites will range from $50.7 million to $150.6 million.
The company recorded the lower end of this range as a liability.
It is reflected on the Condensed Consolidated Balance Sheet
under the captions "Current Liabilities" and "Deferred Credits
and Other Non-Current Liabilities."  SJG's recorded
environmental remediation costs do not directly affect earnings
because those costs are deferred and recovered through rates
over 7-year amortization periods as allowed by the BPU.  SJG did
not adjust the accrued liability for future insurance
recoveries, which the company is pursuing.  SJG received $4.2
million of insurance recoveries as of September 30, 1998.  SJG
used these proceeds to offset related legal fees and to reduce
the balance of deferred environmental remediation costs.
Recorded amounts include estimated costs based on projected
investigation and remediation work plans using existing
technologies.  Actual costs could differ from the estimates due
to the long-term nature of the projects, changing technology,
government regulations and site specific requirements.

     As a result of the 7-year Remediation Adjustment Clause (RAC)
recovery mechanism, SJG does not expense environmental
remediation costs when incurred and defers costs to be
recovered.  SJG has two regulatory assets associated with
environmental costs.  The first regulatory asset is titled
"Environmental Remediation Cost: Expended - Net."  These
expenditures represent what was actually spent to clean up
former gas manufacturing plant sites.  These costs meet the
requirements of FASB No. 71, "Accounting for the Effects of
Certain Types of Regulation."  The BPU allowed SJG to recover
these expenditures through July 1996 and petitions to recover
these costs through July 1998 are pending.

     The other regulatory asset titled "Environmental Remediation
Cost: Liability for Future Expenditures" relates to estimated
future expenditures determined under the guidance of FASB No. 5,

                                     SJG-23

"Accounting for Contingencies."  This amount, which relates to
former manufactured gas plant sites, was recorded as a deferred
debit with the corresponding amount reflected on the balance
sheet under the captions "Current Liabilities" and "Deferred
Credits and Other Non-Current Liabilities."   The deferred debit
is a regulatory asset under FASB No. 71, because the BPU's
intent, as evidenced by its current practice, is to allow SJG to
recover the deferred costs after they are expended.

     SJG files with the BPU to recover these costs in rates through
its RAC.  The BPU has consistently allowed the full recovery
over 7-year periods, and SJG believes this will continue.  As of
September 30, 1998, SJG's unamortized remediation costs of $21.3
million are reflected on the balance sheet under the caption
"Regulatory and Other Non-Current Assets."  Since BPU approval
of the RAC in August 1992, SJG has recovered $15.6 million
through rates as of September 30, 1998.

     On July 31, 1996, 1997 and 1998, SJG filed with the BPU to
recover an increase in remediation costs expended from August
1995 through July 1998 totaling $4.5 million.  The BPU approved
the 1996-1997 Remediation Adjustment Clause (RAC) filing on
October 9, 1998.  The 1997-1998 RAC filing has been updated and
the results were included in the 1998-1999 RAC filing.  Both
filings are still pending at the BPU.

     Other Regulatory Asset Recovery

     The adoption of FASB No. 109, "Accounting for Income Taxes," in
1993 primarily resulted in creating a regulatory asset and a
deferred income tax liability.  As a result of positions taken
in the 1994 rate case, the amortization of the asset is being
recovered through rates over an 18-year period which began in
December 1994.  Also, FASB No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," adopted by the
company in 1993, requires an accrual basis of accounting for
retiree benefit payments during the years of employment.  The
company elected to recognize the unfunded transition obligation
over a 20-year period beginning in 1993.  The majority of the
postretirement benefit costs were previously recoverable by SJG
through rates on a pay-as-you-go basis.  A December 1994 BPU
order provided for partial recovery of costs associated with
FASB No. 106 and prescribed continued deferral of unrecovered
costs.  Beginning January 1, 1998, the BPU approved full
recovery of the net periodic benefit cost as well as recovery of
the regulatory asset over a 15-year period.   In 1995, an
external trust was established towards funding postretirement
benefit costs.  Rate recovery in excess of SJG's pay-as-you-go
requirement is contributed to the trust and provides no
operating benefit to SJG except to the extent that trust income
reduces future net periodic cost.  Gross contributions to the
trust amounted to $.9 million and $2.7 million for the three and
nine months ended September 30, 1998, respectively.  The balance
of the regulatory asset amounted to $5.7 million at September
30, 1998.

                                     SJG-24

     Other

     SJG is subject to claims which arise in the ordinary course of
its business and other legal proceedings.  The company sets up
reserves when claims become apparent.  SJG also maintains
insurance and records probable insurance recoveries relating to
outstanding claims.

     A group of Atlantic City casinos filed a petition with the BPU
on January 16, 1996 alleging overcharges of over $10.0 million,
including interest.  A settlement has been arrived at in this
litigation, under which SJG will make no payments.  The group of
casinos have issued general releases to SJG, and on September 4,
1998 the petition was withdrawn.

Capital Resources

     The company has a continuing need for cash resources and
capital, primarily to invest in new and replacement facilities
and equipment and for environmental remediation costs.  Net
construction and remediation expenditures for the first nine
months of 1998 amounted to $39.8 million.  The costs for 1998,
1999 and 2000 are estimated at approximately $71.6 million,
$52.2 million and $60.5 million, respectively.  These
investments are expected to be funded from several sources,
which may include cash generated by operations, temporary use of
short-term debt, sale of first mortgage bonds, capital leases
and RAC recoveries.

     On March 21, 1997, SJG sold $35.0 million of its First Mortgage
Bonds, 7.7% Series due 2027.

     On May 2, 1997, SJG's Delaware statutory trust subsidiary, SJG
Capital Trust, sold $35.0 million of 8.35% SJG-guaranteed
Mandatorily Redeemable Preferred Securities.  The Trust holds as
its sole asset the 8.35% Deferrable Interest Subordinated
Debentures issued by SJG maturing April 30, 2037.  The
Debentures and Preferred Securities are redeemable at the option
of SJG at a redemption price equal to 100% of the principal
amount at any time on or after April 30, 2002.

     On October 21, 1998, SJG issued $30.0 million of debt under a
Medium Term Note Program established October 5, 1998.  Notes
totaling $10.0 million were issued at 6.12%, maturing in 2010,
and $20.0 million of notes were issued at 7.125%, maturing in
2018.  The net proceeds of these note issuances were used to
retire short-term debt and to fund capital expenditures.

Ratio of Earnings to Fixed Charges

     The company's ratio of earnings to fixed charges for each of
the periods indicated is as follows:

                                     SJG-25

                                                   Twelve
                                                Months Ended
          Years Ended December 31,              September 30,
---------------------------------------------   ------------
  1993     1994     1995     1996     1997          1998
  ----     ----     ----     ----     ----          ----
   2.6      2.1      2.3      2.5      2.6           2.2


     The ratio of earnings to fixed charges represents, on a pre-tax
basis, the number of times earnings cover fixed charges.
Earnings consist of net income, to which has been added fixed
charges and taxes based on income of the company, excluding the
cumulative effect of an accounting change.  Fixed charges
consist of interest charges and preferred securities dividend
requirements and an interest factor in rentals.

Other Event

     On October 14, 1998, SJI and Conectiv announced plans for a
joint customer account services venture that will begin to
provide meter reading services in southern New Jersey by the end
of the year.  The new venture will allow both companies to
capitalize on the synergies that exist because their companies'
territories overlap.  Customers should benefit from the
companies' collective ability to reduce meter reading costs.

Inflation

     The ratemaking process provides that only the original cost of
utility plant is recoverable in revenues as depreciation.
Therefore, the excess cost of utility plant, stated in terms of
current cost over the original cost of utility plant, is not
presently recoverable.  While the ratemaking process gives no
recognition to the current cost of replacing utility plant,
based on past practices, SJG believes it will be allowed to earn
on the increased cost of its net investment as replacement of
facilities actually occurs.

Summary

     The company is confident it will have sufficient cash flow to
meet its operating, capital and dividend needs and is taking and
will take such actions necessary to employ its resources
effectively.

                                     SJG-26




                          PART II    OTHER INFORMATION



Item l.  Legal Proceedings

     Information required by this Item is incorporated by reference
to Part I, Item 1, Note 6, on pages 12, 13 and 14 excluding the
first two paragraphs of the Note, regarding contingencies,
including pending litigation and the remediation and clean-up of
certain sites which included     manufactured gas operations.


Item 6.  Exhibits and Reports on Form 8-K

     b.  No reports on Form 8-K were filed during the quarter
for which this report is filed.



                                     SJG-27



                                   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.


                            SOUTH JERSEY GAS COMPANY
                                  (Registrant)




  Dated:  November 13, 1998        By:   /s/ David A. Kindlick
                                         David A. Kindlick
                                         Senior Vice President, Finance & Rates




  Dated:  November 13, 1998        By:   /s/ William J. Smethurst, Jr.
                                         William J. Smethurst, Jr.
                                         Vice President and Treasurer



                                     SJG-28



                            SOUTH JERSEY GAS COMPANY



                               Index to Exhibits




            Exhibit Number                         Description

                  27                Financial Data Schedule
                                    (Submitted only in electronic format to the
                                    Securities and Exchange Commission).




                                     SJG-29
{"company-data": {"conformed-name": "SOUTH JERSEY GAS CO/NEW", "cik": "0001035216", "assigned-sic": "4923", "irs-number": "210398330", "state-of-incorporation": "NJ", "fiscal-year-end": "1231"}, "filing-values": {"form-type": "10-Q", "act": "34", "file-number": "000-22211", "film-number": "98751765"}, "business-address": {"street1": "NUMBER ONE SOUTH JERSEY PLAZA", "street2": "ROUTE 54", "city": "FOLSOM", "state": "NJ", "zip": "08037", "phone": "6095619000"}, "mail-address": {"street1": "NUMBER ONE SOUTH JERSEY PLAZA", "street2": "ROUTE 54", "city": "FOLSOM", "state": "NJ", "zip": "08037"}}
Page 1 of 29

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC  20549
                                   FORM 10-Q

                   QUARTERLY REPORT UNDER SECTION 13 or 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

 For the Quarter Ended September 30, 1998       Commission File Number 1-12899

                            SOUTH JERSEY GAS COMPANY
             (Exact name of registrant as specified in its charter)

            New Jersey                              22-0398330
      (State of incorporation)          (IRS employer identification no.)

                    1 South Jersey Plaza, Folsom, NJ  08037
          (Address of principal executive offices, including zip code)

                                 (609) 561-9000
              (Registrant's telephone number, including area code)

        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  [  ]

        As of November 5, 1998, there were 2,339,139 shares of the
        registrant's common stock outstanding.  All common shares are
        owned by South Jersey Industries, Inc., the parent company of
        South Jersey Gas Company.

                            Exhibit Index on page 29

                                 - Cover Page -

                        PART I    FINANCIAL INFORMATION

            Item 1.  Financial Statements  -  See Pages 3 through 14

                                     SJG-2

                      SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

               CONDENSED STATEMENTS OF CONSOLIDATED LOSS  (UNAUDITED)
                      (In Thousands Except for Per Share Data)
Three Months Ended
                                                              September 30,
                                                      -----------------------------
                                                          1998             1997
                                                      ------------     ------------
Operating Revenues:
  Utility                                                 $43,097          $49,635
  Other                                                       383              441
                                                      ------------     ------------
      Total Operating Revenues                             43,480           50,076
                                                      ------------     ------------
Operating Expenses:
  Gas Purchased for Resale                                 26,259           31,483
  Utility Operations                                       10,207           10,149
  Other Operations                                            418              404
  Maintenance                                               1,116            1,552
  Depreciation                                              4,318            4,027
  Federal and State Income Taxes                           (2,329)          (1,799)
  Other Taxes                                               1,575            3,149
                                                      ------------     ------------
      Total Operating Expenses                             41,564           48,965
                                                      ------------     ------------
Operating Income                                            1,916            1,111
                                                      ------------     ------------
Interest Charges:
  Long-Term Debt                                            3,646            3,971
  Short-Term Debt                                           1,269              248
  Other                                                       108              105
                                                      ------------     ------------
      Total Interest Charges                                5,023            4,324
                                                      ------------     ------------
Loss Before Preferred Dividend Requirements                (3,107)          (3,213)
Preferred Stock Dividend Requirements                          41               42
Preferred Securities Dividend Requirements                    731              731
                                                      ------------     ------------
      Net Loss Applicable to Common Stock                 ($3,879)         ($3,986)
                                                      ============     ============
Average Shares of Common Stock Outstanding                  2,339            2,339
                                                      ============     ============
Earnings Per Common Share                                  ($1.66)          ($1.70)
                                                      ============     ============
Dividends Declared Per Common Share                        $1.830           $1.635
                                                      ============     ============
The accompanying footnotes are an integral part of the financial statements.
SJG-3

                      SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

              CONDENSED STATEMENTS OF CONSOLIDATED INCOME  (UNAUDITED)
                      (In Thousands Except for Per Share Data)
Nine Months Ended
                                                              September 30,
                                                      -----------------------------
                                                          1998             1997
                                                      ------------     ------------
Operating Revenues:
  Utility                                                $202,997         $233,523
  Other                                                     1,224            1,483
                                                      ------------     ------------
      Total Operating Revenues                            204,221          235,006
                                                      ------------     ------------
Operating Expenses:
  Gas Purchased for Resale                                117,860          133,304
  Utility Operations                                       29,726           29,000
  Other Operations                                          1,307            1,339
  Maintenance                                               3,979            4,553
  Depreciation                                             12,741           11,879
  Federal and State Income Taxes                            7,120            7,113
  Other Taxes                                               7,456           21,558
                                                      ------------     ------------
      Total Operating Expenses                            180,189          208,746
                                                      ------------     ------------
Operating Income                                           24,032           26,260
                                                      ------------     ------------
Interest Charges:
  Long-Term Debt                                           11,182           11,261
  Short-Term Debt                                           2,386            1,969
  Other                                                       344              314
                                                      ------------     ------------
      Total Interest Charges                               13,912           13,544
                                                      ------------     ------------
Income Before Preferred Dividend Requirements              10,120           12,716
Preferred Stock Dividend Requirements                         125              128
Preferred Securities Dividend Requirements                  2,192            1,202
                                                      ------------     ------------
      Net Income Applicable to Common Stock                $7,803          $11,386
                                                      ============     ============
Average Shares of Common Stock Outstanding                  2,339            2,339
                                                      ============     ============
Earnings Per Common Share                                   $3.34            $4.87
                                                      ============     ============
Dividends Declared Per Common Share                        $5.295           $4.906
                                                      ============     ============
The accompanying footnotes are an integral part of the financial statements.
SJG-4

                             SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

                              CONDENSED CONSOLIDATED BALANCE SHEETS
                                          (In Thousands)
(Unaudited)
                                                                 September 30,         December 31,
                                                           -------------------------   -------------
                                                               1998         1997           1997
                                                           ------------ ------------   -------------
Assets

Property, Plant and Equipment:
  Utility Plant, at original cost                             $654,961     $607,395        $619,489
    Accumulated Depreciation                                  (176,367)    (164,700)       (167,176)
  Gas Plant Acquisition Adjustment - Net                         1,869        1,944           1,926
                                                           ------------ ------------   -------------
      Property, Plant and Equipment - Net                      480,463      444,639         454,239
                                                           ------------ ------------   -------------
Available-for-Sale Securities                                      666            0               0
                                                           ------------ ------------   -------------
Current Assets:
  Cash and Cash Equivalents                                      1,134        3,684           6,596
  Accounts Receivable                                           12,680       18,720          30,116
  Unbilled Revenues                                              4,163        4,220          17,263
  Provision for Uncollectibles                                  (1,032)      (1,032)         (1,032)
  Natural Gas in Storage, average cost                          28,194       26,600          23,877
  Materials and Supplies, average cost                           3,973        3,954           4,509
  Prepaid Taxes                                                 13,599        8,513             566
  Prepayments and Other Current Assets                           1,698        2,386           1,661
                                                           ------------ ------------   -------------
      Total Current Assets                                      64,409       67,045          83,556
                                                           ------------ ------------   -------------
Accounts Receivable - Merchandise                                1,121        1,547           1,449
                                                           ------------ ------------   -------------
Regulatory and Other Non-Current Assets:
  Environmental Remediation Costs:
    Expended - Net                                              21,345       17,805          21,041
    Liability for Future Expenditures                           50,697       52,400          52,400
  Gross Receipts & Franchise Taxes                               3,696        4,139           4,028
  Income Taxes - Flowthrough Depreciation                       13,265       14,243          13,999
  Deferred Fuel Costs - Net                                      4,555          493           3,674
  Deferred Postretirement Benefit Costs                          5,679        5,872           6,150
  Other                                                          7,123        7,761           8,577
                                                           ------------ ------------   -------------
      Total Regulatory and Other Non-Current Assets            106,360      102,713         109,869
                                                           ------------ ------------   -------------
      Total Assets                                            $653,019     $615,944        $649,113
                                                           ============ ============   =============
The accompanying footnotes are an integral part of the financial statements.
SJG-5

                             SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

                              CONDENSED CONSOLIDATED BALANCE SHEETS
                                          (In Thousands)
(Unaudited)
                                                                 September 30,          December 31,
                                                           -------------------------   -------------
                                                               1998         1997           1997
                                                           ------------ ------------   -------------
Capitalization and Liabilities

Common Equity:
  Common Stock, Par Value $2.50 per share:
    Authorized - 4,000,000 shares
    Outstanding - 2,339,139 shares                              $5,848       $5,848          $5,848
  Other Paid-In Capital and Premium on Common Stock            102,817      102,817         102,817
  Retained Earnings                                             51,537       51,433          56,120
                                                           ------------ ------------   -------------
      Total Common Equity                                      160,202      160,098         164,785
                                                           ------------ ------------   -------------
Preferred Stock and Securities:
  Redeemable Cumulative Preferred - Par Value $100 per
   share,
    Authorized - 46,404, 47,304 and 47,304 shares
    Outstanding:
        Series A, 4.70% - 2,100, 3,000 and 3,000 shares            210          300             300
        Series B, 8.00% - 19,242 shares                          1,924        1,924           1,924
  Company-Guaranteed Mandatorily Redeemable
   Preferred Securities of Subsidiary Trust
   Par Value $25 per share, 1,400,000 shares
   Authorized and Outstanding                                   35,000       35,000          35,000
                                                           ------------ ------------   -------------
      Total Preferred Stock and Securities                      37,134       37,224          37,224
                                                           ------------ ------------   -------------
Long-Term Debt                                                 166,853      178,003         175,860
                                                           ------------ ------------   -------------
      Total Capitalization                                     364,189      375,325         377,869
                                                           ------------ ------------   -------------
Current Liabilities:
  Notes Payable                                                 94,800       28,600          45,900
  Current Maturities of Long-Term Debt                           8,876        8,876           8,876
  Accounts Payable                                              17,464       37,786          45,581
  Customer Deposits                                              5,552        5,795           5,871
  Environmental Remediation Costs                               16,037        7,735          14,373
  Taxes Accrued                                                  1,181          142             980
  Interest Accrued and Other Current Liabilities                 6,297        4,580           6,751
                                                           ------------ ------------   -------------
      Total Current Liabilities                                150,207       93,514         128,332
                                                           ------------ ------------   -------------
Deferred Credits and Other Non-Current Liabilities:
  Deferred Income Taxes - Net                                   81,641       80,225          81,847
  Investment Tax Credits                                         5,335        5,728           5,632
  Pension and Other Postretirement Benefits                     11,267       10,434          10,798
  Environmental Remediation Costs                               34,660       44,665          38,027
  Other                                                          5,720        6,053           6,608
                                                           ------------ ------------   -------------

      Total Deferred Credits and Other Non-Current
       Liabilities                                             138,623      147,105         142,912
                                                           ------------ ------------   -------------
Commitments and Contingencies

      Total Capitalization and Liabilities                    $653,019     $615,944        $649,113
                                                           ============ ============   =============
The accompanying footnotes are an integral part of the financial statements.
SJG-6

                             SOUTH JERSEY GAS COMPANY AND SUBSIDIARY

                   CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS  (UNAUDITED)
                                          (In Thousands)
Nine Months Ended
                                                                            September 30,
                                                                    -----------------------------
                                                                        1998             1997
                                                                    ------------     ------------
Cash Flows from Operating Activities:

  Net Income Applicable to Common Stock                                  $7,803          $11,386
  Adjustments to Reconcile Net Income to Cash Flows Provided by
   Operating Activities:
    Depreciation and Amortization                                        14,211           13,316
    Provision for Losses on Accounts Receivable                             932              948
    Revenues and Fuel Costs Deferred - Net                                 (881)             (89)
    Deferred and Non-Current Income Taxes and Credits - Net               3,160            2,499
    Environmental Remediation Costs - Net                                  (304)          (2,239)
    Changes in:
      Accounts Receivable                                                29,604           25,468
      Inventories                                                        (3,781)          (3,861)
      Prepayments and Other Current Assets                                  (38)            (824)
      Prepaid and Accrued Taxes - Net                                   (12,832)          (6,858)
      Accounts Payable and Other Accrued Liabilities                    (28,890)          (8,309)
  Other - Net                                                            (1,542)           2,870
                                                                    ------------     ------------
      Net Cash Provided by Operating Activities                           7,442           34,307
                                                                    ------------     ------------
Cash Flows from Investing Activities:
  Purchase of Available-for Sale Securities                                (666)               0
  Capital Expenditures, Cost of Removal and Salvage                     (39,517)         (35,587)
                                                                    ------------     ------------
      Net Cash Used in Investing Activities                             (40,183)         (35,587)
                                                                    ------------     ------------
Cash Flows from Financing Activities:
  Net Borrowings from (Repayments of) Lines of Credit                    48,900          (79,700)
  Proceeds from Issuance of Long-Term Debt                                    0           35,000
  Principal Repayments of Long-Term Debt                                 (9,007)          (4,461)
  Dividends on Common Stock                                             (12,386)         (11,475)
  Proceeds from Issuance of Preferred Securities                              0           35,000
  Repurchase of Preferred Stock                                             (90)             (90)
  Payments for Issuance of Long-Term Debt and Preferred Securities         (138)          (2,402)
  Additional Investment by Shareholder                                        0           25,623
                                                                    ------------     ------------
      Net Cash Provided by (Used in) Financing Activities                27,279           (2,505)
                                                                    ------------     ------------
Net Decrease in Cash and Cash Equivalents                                (5,462)          (3,785)

Cash and Cash Equivalents at Beginning of Period                          6,596            7,469
                                                                    ------------     ------------
Cash and Cash Equivalents at End of Period                               $1,134           $3,684
                                                                    ============     ============
The accompanying footnotes are an integral part of the financial statements.
SJG-7

        Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1.  Summary of Significant Accounting Policies:

     The Entity

     The condensed consolidated financial statements include the
accounts of South Jersey Gas Company (SJG) and its wholly owned
statutory trust subsidiary, SJG Capital Trust.  South Jersey
Industries, Inc. (SJI) owns all of SJG's outstanding common
stock.  Certain reclassifications have been made of previously
reported amounts to conform with classifications used in the
current year.

     Estimates and Assumptions

     SJG prepares its financial statements to conform with
generally accepted accounting principles.  This requires the
company to make estimates and assumptions affecting the amounts
reported in the financial statements and related disclosures.
Therefore, actual results may differ from those estimates.

     Regulation

     SJG is subject to the rules and regulations of the New Jersey
Board of Public Utilities (BPU) and maintains its accounts in
accordance with the prescribed Uniform System of Accounts of
that Board (See Note 2).

     New Accounting Pronouncements

     In June 1997, the Financial Accounting Standards Board (FASB)
issued FASB No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for
fiscal years beginning after December 15, 1997.  This statement
establishes standards for reporting selected information about
operating segments in the company's interim and annual financial
statements.  SJG is evaluating whether adopting this statement
will change the company's presentation of financial information.
SJG adopted FASB No. 131 effective January 1, 1998; however, as
permitted by this statement, the company will not report segment
information in interim financial statements until 1999.

     Energy Tax Reform

     New Jersey adopted legislation reforming energy taxation
effective July 14, 1997.  The new law eliminated the Gross
Receipts and Franchise Tax (GRAFT), amounting to approximately
13% of utility revenue, and replaced it with a combination of
taxes.  Beginning January 1, 1998, retail sales of natural gas

                                     SJG-8

and electricity and utility services, including transportation,
are subject to the 6% State Sales and Use Tax (SUT).  Gas and
electric utilities are also subject to the 9% State Corporation
Business Tax (CBT) on income before taxes.  To bridge the
revenue gap created by the new tax law, the state imposed a
Transitional Energy Facilities Assessment (TEFA) on volumes of
gas sold and transported.  The TEFA will be phased out over five
years beginning January 1, 1999 and ending January 1, 2003.  The
revised tax policy is expected to eliminate tax differences
between utility and nonutility suppliers, providing fair
competition and lower energy costs for consumers.  The new
legislation does not materially affect the company's financial
position, operating results or liquidity (See Note 2).  However,
since the SUT is not included in reported utility revenues or
tax expense as GRAFT was previously, there are equal reductions
in these line items on the Condensed Statements of Consolidated
Income.

Note 2.  Regulatory Matters:

     On July 31, 1996, 1997 and 1998, SJG filed with the BPU to
recover an increase in remediation costs expended from August
1995 through July 1998 totaling $4.5 million.  The BPU approved
the 1996-1997 Remediation Adjustment Clause filing on October 9,
1998.  The 1997-1998 RAC filing has been updated and the results
were included in the 1998-1999 RAC filing.  Both filings are
still pending at the BPU.

     On January 27, 1997, the BPU granted SJG a total rate increase
of $10.3 million.  The $6.0 million base rate portion of the
increase was based on a 9.62% rate of return on rate base, which
included an 11.25% return on common equity.  The majority of
this increase comes from residential and small commercial
customers.  Part of the increase is recovered from new
miscellaneous service fees which charge specific customers for
costs they cause SJG to incur.  Additionally, SJG's threshold
for sharing pre-tax margins generated by interruptible and
off-system sales and transportation (Sharing Formula) was
increased from $4.0 million to $5.0 million.  SJG keeps 100% of
pre-tax margins up to the threshold level and 20% of such
margins above that level.  Later in 1997, the $5.0 million
threshold was increased by $500,000 which is the annual revenue
requirement associated with the completion of construction on a
specified pipeline interconnection.  At the beginning of 1999,
this $5.5 million threshold will increase by another $2.3
million, also representative of the annual revenue requirement
associated with major construction projects.  On October 9,
1998, the BPU approved a revision to the Sharing Formula as part
of an agreement to modify SJG's Temperature Adjustment Clause
(TAC).  The revision credits the first $750,000 above the
applicable threshold level to the Levelized Gas Adjustment
Clause (LGAC) customers.  Thereafter, SJG keeps 20% of the
pre-tax margins as it has historically.

     As part of the tariff changes approved in the rate case, SJG
began its pilot program in April 1997, giving residential
customers a choice of gas supplier.  During the initial
enrollment period, which ended June 30, 1997, nearly 13,000
residential customers applied for this service.  SJG began
transporting gas for these customers on August 1, 1997.  On June
26, 1998, the BPU expanded the number of potential participants

                                     SJG-9

to 25,000.  There were 14,841 participants as of September 30,
1998.  Participant's bills are reduced for cost of gas charges
and applicable taxes.  The resulting decrease in revenues is
offset by a corresponding decrease in gas costs and taxes under
SJG's BPU-approved fuel clause.    While the program results in
a reduction in utility revenues, it does not affect the
company's net income, financial condition or margins.   As part
of the tariff changes approved in the rate case, SJG further
expanded the choices available to commercial and industrial
customers, including a new transportation tariff providing
savings to qualified customers.

     On May 13, 1997, SJG filed to recover additional
postretirement benefit costs of approximately $1.3 million
annually.  This recovery was approved on December 17, 1997 and
began January 1, 1998.

     On September 9, 1997, SJG filed with the BPU to adjust rates
by replacing the GRAFT with SUT, CBT and TEFA components (See
Note 1).  The new rates became effective January 1, 1998 on an
interim basis and were made final effective July 13, 1998.

     In September 1996, SJG filed to reduce rates through the
1996-1997 LGAC reflecting a $1.4 million decrease in natural gas
costs.  Updated 1996-1997 LGAC year results were rolled into the
1997-1998 LGAC which was filed with the BPU in September 1997.

     On September 12, 1997 and September 8, 1998, SJG made its
annual LGAC, TAC and Demand Side Management Clause (DSMC)
filings with the BPU.  The LGAC and DSMC cover the period
November 1 through October 31 of each year.  The TAC period runs
from October 1 through May 31.  In the 1997-1998 filing, the
company requested a $4.7 million increase in the annual LGAC
recovery which includes the 1996-1997 LGAC year results referred
to above.  SJG updated this amount to $7.0 million in August
1998 and included this amount in its 1998-1999 LGAC filing.  The
1998-1999 LGAC filing requested a decrease in rates of $414,000.
The company also requested resolution of prior year filings
along with the 1998-1999 filing.  All filings are still pending
at the BPU.

     On March 5, 1998, the BPU approved new appliance service
rates.  The new rates are competitive with those of other
service providers in New Jersey and are designed to increase
earnings and cash flows to SJG over the current rates.  In April
1998, the BPU also authorized SJG to offer new appliance service
contract plans and to service electric air conditioners.

     On June 8, 1998, SJG filed a petition with the BPU requesting
a change in the way in which the TAC operates.  The request was
granted on October 9, 1998.  As a result, SJG will experience
reduced fluctuations in income when temperatures are warmer or
colder than normal.

                                     SJG-10

Note 3.  Related Party Transactions:

     SJG contracted with R&T Group, Inc. (R&T), SJI's wholly owned
subsidiary, for general utility construction and environmental
remediation services costing approximately $ -0- and $1,901,000
for the nine months ended September 30, 1998 and 1997,
respectively.  The amounts payable to R&T relating to these
services were $ -0-  and $10,500 at September 30, 1998 and 1997,
respectively.  SJI discontinued the operations and sold the
assets of R&T during the first half of 1997.

     SJG sells natural gas for resale to South Jersey Energy
Company (SJE), SJI's wholly owned subsidiary.  These sales
comply with Section 284.402 of the Regulations of the Federal
Energy Regulatory Commission (FERC).  Sales to SJE were
approximately $39,000 and $ -0- for the three months ended and
$331,800 and $ -0- for the nine months ended September 30, 1998
and 1997, respectively.

Note 4.  Income and Other Taxes:

     SJG is included in the consolidated Federal Income tax return
filed by SJI and files on a separate return basis for State
Income Tax purposes.  The aggregate amounts of current and
deferred tax (credit) expense for the three and nine months
ended September 30, 1998 and 1997 are shown below (in thousands):

                                Three Months Ended      Nine Months Ended
                                   September 30,           September 30,
                               ---------------------   ---------------------
                                  1998       1997         1998       1997
                               ---------- ----------   ---------- ----------
Federal:
  Current                            $47    ($2,675)      $2,437     $4,614
  Deferred                        (1,721)       975        3,059      2,796
Investment Tax Credits               (99)       (99)        (297)      (297)
State:
  Current                           (446)         0        1,523          0
  Deferred                          (110)         0          398          0
                               ---------- ----------   ---------- ----------
      Total Federal and State
       Income Taxes              ($2,329)   ($1,799)      $7,120     $7,113
                               ========== ==========   ========== ==========

     The significant components of other taxes reflected in the
Condensed Statements of Consolidated Income for the three and
nine months ended September 30, 1998 and 1997 are shown below
(in thousands):

                                     SJG-11

                                Three Months Ended      Nine Months Ended
                                   September 30,           September 30,
                               ---------------------   ---------------------
                                  1998       1997         1998       1997
                               ---------- ----------   ---------- ----------
TEFA                                $918         $0       $5,278         $0
GRAFT                                110      2,577           13     19,304
Other Taxes                          547        572        2,165      2,254
                               ---------- ----------   ---------- ----------
      Total Other Taxes           $1,575     $3,149       $7,456    $21,558
                               ========== ==========   ========== ==========

     During the three and nine months ended September 30, 1998, SJG
recorded an additional $1.4 million and $9.0 million,
respectively, for SUT on utility services through its Condensed
Consolidated Balance Sheet.  Such amounts are not included in
reported revenues or tax expense as SJG only acts as agent for
the collection of SUT (See Note 1).

Note 5.  Capitalization:

     SJG's First Mortgage Indenture, as supplemented, restricts the
company as to the amount of cash dividends or other
distributions it may pay on its common stock.  SJG had
approximately $49.6 million in retained earnings at September
30, 1998 that were free of these restrictions.

     On March 26, 1997, SJG received $25.6 million in contributions
of capital from SJI.  SJG credits capital contributions to Other
Paid-In Capital and Premium on Common Stock.  SJG made no other
changes in common stock during 1998 and 1997.

Note 6.  Commitments and Contingencies:

     Construction Commitments

     The estimated cost of construction and environmental
remediation programs for the company in 1998 will total $71.6
million.  SJG has made certain commitments regarding these
programs.

     Gas Supply Contracts

     SJG has entered into long-term contracts for natural gas
supplies, firm transportation, and firm gas storage service.
The earliest that any of the gas supply contracts expire is
October 2000.  All of the transportation and storage service
agreements between SJG and its interstate pipeline suppliers
were made under FERC approved tariffs.  SJG's cumulative
obligation for demand charges and reservation fees paid to its

                                     SJG-12

suppliers for all of these services is approximately $4.9
million per month, which SJG recovers on a current basis through
the LGAC.

     Pending Litigation

     SJG is subject to claims which arise in the ordinary course of
business and other legal proceedings.  The company sets up
reserves when these claims become apparent.  SJG also maintains
insurance and records probable insurance recoveries relating to
outstanding claims.

     A group of Atlantic City casinos filed a petition with the BPU
on January 16, 1996 alleging overcharges of over $10.0 million,
including interest.  A settlement has been arrived at in this
litigation, under which SJG will make no payments.  The group of
casinos have issued general releases to SJG, and on September 4,
1998 the petition was withdrawn.

     Environmental Remediation Costs

     SJG incurred and recorded costs for environmental clean up of
sites where SJG or predecessor companies operated gas
manufacturing plants.  SJG terminated manufactured gas
operations at all sites more than 35 years ago.

     Since the early 1980s, SJG has recorded environmental
remediation costs of $91.8 million.  The company has spent $41.1
million as of September 30, 1998.  SJG, with the assistance of
an outside consulting firm, estimates that future costs to clean
up the sites will range from $50.7 million to $150.6 million.
The company recorded the lower end of this range as a liability.
It is reflected on the Condensed Consolidated Balance Sheet
under the captions "Current Liabilities" and "Deferred Credits
and Other Non-Current Liabilities."  SJG's recorded
environmental remediation costs do not directly affect earnings
because those costs are deferred and recovered through rates
over 7-year amortization periods as allowed by the BPU.  SJG did
not adjust the accrued liability for future insurance
recoveries, which the company is pursuing.  SJG received $4.2
million of insurance recoveries as of September 30, 1998.  SJG
used these proceeds to offset related legal fees and to reduce
the balance of deferred environmental remediation costs.
Recorded amounts include estimated costs based on projected
investigation and remediation work plans using existing
technologies.  Actual costs could differ from the estimates due
to the long-term nature of the projects, changing technology,
government regulations and site specific requirements.

     As a result of the 7-year Remediation Adjustment Clause (RAC)
recovery mechanism, SJG does not expense environmental
remediation costs when incurred and defers costs to be
recovered.  SJG has two regulatory assets associated with
environmental costs.  The first regulatory asset is titled
"Environmental Remediation Cost: Expended - Net."  These
expenditures represent what was actually spent to clean up
former gas manufacturing plant sites.  These costs meet the
requirements of FASB No. 71, "Accounting for the Effects of

                                     SJG-13

Certain Types of Regulation."  The BPU allowed SJG to recover
these expenditures through July 1996 and petitions to recover
these costs through July 1998 are pending (See Note 2).

     The other regulatory asset titled "Environmental Remediation
Cost:  Liability for Future Expenditures" relates to estimated
future expenditures determined under the guidance of FASB No. 5,
"Accounting for Contingencies."  This amount, which relates to
former manufactured gas plant sites, was recorded as a deferred
debit with the corresponding amount reflected on the balance
sheet under the captions "Current Liabilities" and "Deferred
Credits and Other Non-Current Liabilities."  The deferred debit
is a regulatory asset under FASB No. 71 because the BPU's
intent, as evidenced by its current practice, is to allow SJG to
recover the deferred costs after they are expended.

     SJG files with the BPU to recover these costs in rates through
its RAC.  The BPU has consistently allowed the full recovery
over 7-year periods, and SJG believes this will continue.  As of
September 30, 1998, SJG's unamortized remediation costs of $21.3
million are reflected on the balance sheet under the caption
"Regulatory and Other Non-Current Assets."  Since BPU approval
of the RAC in August 1992, SJG has recovered $15.6 million
through rates as of September 30, 1998 (See Note 2).

Note 7.  Subsequent Events:

     On October 14, 1998, SJI and Conectiv announced plans for a
joint customer account services venture that will begin to
provide meter reading services in southern New Jersey by the end
of the year.  The new venture will allow both companies to
capitalize on the synergies that exist because their companies'
territories overlap.  Customers should benefit from the
companies' collective ability to reduce meter reading costs.

     On October 21, 1998, SJG issued $30.0 million of debt under a
Medium Term Note Program established October 5, 1998.  Under
this program, $10.0 million of notes were issued at 6.12%,
maturing in 2010, and $20.0 million of notes were issued at
7.125%, maturing in 2018.

                                     SJG-14

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

Overview

     South Jersey Gas Company (SJG) is a natural gas distribution
company serving 263,883 customers at September 30, 1998,
compared with 257,587 customers at September 30, 1997.  SJG also
makes off-system sales of natural gas on a wholesale basis to
various customers on the interstate pipeline system and
transports natural gas purchased directly from producers or
suppliers for its own sales and for some of its customers.
South Jersey Industries, Inc. owns all of the common stock of
SJG.

Forward-Looking Statements

     This report contains certain forward-looking statements
concerning projected future financial performance, future
operating performance, future plans and courses of action and
future economic conditions.  All statements in this report other
than statements of historical fact are forward-looking
statements.  These forward-looking statements are made based
upon management's expectations and beliefs concerning future
events impacting the company and therefore involve a number of
risks and uncertainties.  Management cautions that
forward-looking statements are not guarantees and that actual
results could differ materially from those expressed or implied
in the forward-looking statements.

     There are a number of factors that could cause the company's
actual results to differ materially from those anticipated,
which include, but are not limited to, the following:  general
economic conditions on an international, federal, state and
local level; weather conditions in the company's marketing
areas; regulatory and court decisions; competition in the
company's regulated activities; the availability and cost of
capital; costs and effects of unanticipated legal proceedings,
Year 2000 related costs or operating problems and environmental
liabilities; and changes in business strategies.

Competition

     SJG's franchises are non-exclusive.  Currently no other utility
provides retail gas distribution services within its territory.
SJG does not expect any other utilities to do so in the
foreseeable future because of the extensive investment required
for utility plant and related costs.  SJG competes with oil,
propane and electricity suppliers for residential, commercial
and industrial users.  The market for natural gas sales is
subject to competition as a result of deregulation.  SJG has
enhanced its competitive position while maintaining its margins
by using an unbundled tariff which allows the company to recover
its full cost of service, except for the variable cost of the
gas commodity, when engaging in the transportation of gas for
its customers.  Under this tariff, SJG derives substantially all
of its profits from the transportation rather than the sale of
the commodity.  SJG's commercial and industrial customers can

                                     SJG-15

choose their supplier while SJG recovers its cost of service and
fixed gas costs primarily through its transportation service.
In April 1997, SJG initiated its New Jersey Board of Public
Utilities (BPU) approved pilot program giving some residential
customers a choice of gas suppliers (See "Pilot Program - Choice
of Gas Supplier").  SJG believes it has been a leader in
addressing the changing marketplace, while maintaining its focus
on being a low-cost provider of natural gas and energy services.

Pilot Program - Choice of Gas Supplier

     In April 1997, SJG began its BPU-approved pilot program giving
residential customers a choice of gas supplier.  During the
initial enrollment period, which ended June 30, 1997, nearly
13,000 residential customers applied for this service.  SJG
began transporting gas for these customers on August 1, 1997.
On June 26, 1998, the BPU expanded the number of potential
participants to 25,000.  There were 14,841 participants as of
September 30, 1998.  Participants' bills are reduced for cost of
gas charges and applicable taxes.  The resulting decrease in
revenues is offset by a corresponding decrease in gas costs and
taxes under SJG's BPU-approved fuel clause.    While the program
results in a reduction in utility revenues, it does not affect
SJG's net income, financial condition or margins.  Also, SJG
further expanded the choices available to commercial and
industrial customers, including a new transportation tariff
providing savings to qualified customers.

Energy Adjustment Clauses

     SJG's tariff includes a Levelized Gas Adjustment Clause (LGAC),
a Temperature Adjustment Clause (TAC), a Remediation Adjustment
Clause (RAC) and a Demand Side Management Clause (DSMC).  These
clauses permit adjustments for changes in gas supply costs,
reduce the impact of extreme fluctuations in temperatures on SJG
and its customers, recover costs for the remediation of former
gas manufacturing plants and recover costs associated with its
conservation plan, respectively.  The BPU-approved LGAC, RAC and
DSMC adjustments are made to match revenues and expenses.  TAC
adjustments do affect revenue, income and cash flows since
colder than normal weather can generate credits to customers,
while warmer than normal weather can result in additional
billings to customers.  TAC adjustments related to the 1997-1998
TAC year did not materially impact the financial statements for
1998.

Status of Year 2000 Conversion

     The company prepared a Year 2000 Impact and Assessment study
and developed a plan for program modification for software and
embedded technology.  An outside service was used to identify both
informational and logic date variables within the programming codes.
This service was completed and expensed in 1997.  Presently, the
company is revising the affected programming codes.  As of September
30, 1998, approximately 64% of the programming code was revised.
All revisions are scheduled to be completed by early 1999,
providing the remainder of 1999 for testing.  The company believes
that all embedded technology relating to its distribution systems is
Y2K compliant.  The conversion costs are estimated at $0.4 million of
which approximately $0.28 million was spent as of September 30, 1998.
Vendors who provide third party software have been contacted and 28 of
31 have indicated that they are now compliant.  The company is also in

                                     SJG-16

the process of securing written verification from its key
product and service vendors to ensure their compliance.
Approximately 50% of all product and service vendors and 80% of
those vendors deemed key suppliers have to date verified that they
will be compliant.  Of the company's two principal gas suppliers, one
has indicated Y2K compliance and the other has yet to respond.

     The worst case scenarios facing SJG involve the impact on the
company's distribution system and general office activities of the
loss of telecommunications and or electrical power as a result of
a Y2K problem with the provider's system.  These events in
themselves do not pose a problem if the duration of loss is less
than 72 hours.  All company sites have electrical generation backup
and utilize two phone carriers should one fail due to a Y2K problem.
The company also has both a private voice and data radio systems
which allow it to monitor remote stations manually.

     Based upon the nature of SJG's operating and information
systems and the current advanced state of planning and
remediation, the company does not anticipate any material
difficulty in completing full year 2000 compliance and any
problems that do arise are expected to be immaterial or
insignificant.

Results of Operations - Three and Nine Months Ended September 30, 1998
Compared to Three and Nine Months Ended September 30, 1997

Operating Revenues

     Revenues decreased $6.6 million for the third quarter of 1998
as compared to the same period in 1997.  The decrease for the
third quarter comparison was primarily due to state tax reform
effective January 1998 which lowered the tax component contained
in reported revenue and by customers using increased levels of
firm transportation service in lieu of firm gas sales.  This
decrease was partially offset by customer growth.

     The lower tax component in reported revenue was offset by a
reduction in Other Taxes (See Notes 1 and 6).  South Jersey Gas'
tariffs are structured such that profits are derived from
transportation, not from the sale of the commodity.
Consequently, while both the tax reform and the switch to firm
transportation reduced total revenues, neither impacted
profitability.

     Revenues decreased $30.8 million for the first nine months of
1998, as compared to the prior year period, primarily due to
lower firm sales resulting from weather that was 16.8% warmer.
The results were also impacted by the same factors that effected
the quarterly results.

Gas Purchased for Resale

     Gas purchased for resale decreased $5.2 million and $15.4
million for the three and the nine month periods ending
September 30, 1998 compared with comparable 1997 periods.  The
nine month decrease was principally due to weather related
decreased sales volumes.  Increased levels of firm
transportation versus firm gas sales accounted for a portion of
the decrease in both periods.  Sources of gas supply include
both contract and open-market purchases.  SJG is responsible for
securing and maintaining its own gas supplies to serve its
customers.

                                     SJG-17

     SJG has entered into long-term contracts for natural gas
supplies, firm transportation, and firm gas storage service.
The earliest that any of these contracts expire is October 2000.
All of the transportation and storage service agreements
between SJG and its interstate pipeline suppliers were made
under Federal Energy Regulatory Commission (FERC) approved
tariffs.  SJG's cumulative obligation for demand charges and
reservation fees paid to its suppliers for all of these services
is approximately $4.9 million per month, which SJG recovers on a
current basis through the LGAC.

Operations

     A summary of net changes in utility operations for 1998
compared with 1997 is as follows (in thousands):

                                         Period Ended September 30,
                                        ----------------------------
                                         Three Months   Nine Months
                                        1998 vs. 1997  1998 vs. 1997
                                        -------------  -------------
Other Production Expense                         $1             $4
Transmission                                     33             52
Distribution                                   (130)          (337)
Appliance Service                               316            543
Customer Accounts and Services                   (3)           282
Sales                                           (24)           (34)
Administration and General                     (135)           216
Other                                            14            (32)
                                        -------------  -------------
                                                $72           $694
                                        =============  =============

     Distribution costs decreased for both periods in 1998
principally due to decreased meter exchange activity.  The majority
of the increase in Appliance Service expense comparisons was due to
expenditures on advertising.  Customer Accounts and Services
costs increased in the first nine months of 1998 principally due
to an increase in payroll expense.  The payroll expense increase
was offset in the third quarter by a reduction in bad debt
expense.  Administrative and General costs increased for the
first nine months of 1998 principally due to increased employee
benefits costs, however, these costs were more than offset
during the third quarter by reductions in expenses for
consultants and regulatory activities.

Other Operating Expenses

     A summary of principal changes in other operating expenses for
1998 compared with 1997 is as follows (in thousands):

                                     SJG-18

                                         Period Ended September 30,
                                        ----------------------------
                                        Three Months    Nine Months
                                        1998 vs. 1997  1998 vs. 1997
                                        -------------  -------------
Maintenance                                   ($436)          (574)
Depreciation                                    291            862
Federal and State Income Taxes                  530              7
Other Taxes                                  (1,574)       (14,102)

     The decrease in maintenance expense is principally due to
utility production plant maintenance, which includes the
amortization of environmental remediation costs (such decreases
are offset by lower revenue recovery under SJG's RAC).
Depreciation is higher principally due to increased investment
in property, plant and equipment.  Federal and State Income Tax
changes reflect the impact of changes in pre-tax income and the
impact of the energy tax reform legislation discussed under
Operating Revenues.  Other Taxes decreased because of
the energy tax reform legislation.

Interest Charges

     Interest charges increased in 1998 by $.7 million and $.4
million for the three and nine month periods, respectively,
versus the comparable 1997 periods.  Interest charges were
increased for the three and nine month periods due to carrying
higher levels of debt partially offset by lower interest rates.
Short-term debt levels were reduced by the application of a
$25.6 million cash equity infusion to SJG from SJI and the
application of the net proceeds from the sale of the Mandatorily
Redeemable Preferred Securities in May 1997.

Preferred Securities Dividend Requirements

     Preferred Dividends increased in 1997 due to the issuance of
$35.0 million of 8.35% SJG-guaranteed Mandatorily Redeemable
Preferred Securities in May 1997 (See "Capital Resources").

Net Income Applicable to Common Stock

     The details affecting net income and earnings per common share
are discussed under the appropriate captions above.

Liquidity

     The seasonal nature of gas operations, the timing of
construction and remediation expenditures and related permanent
financing, as well as mandated tax and sinking fund payment
dates require large short-term cash requirements.  These are
generally met by cash from operations and short-term lines of

                                     SJG-19

credit.  The company maintains short-term lines of credit with a
number of banks, aggregating $120.0 million of which $25.2
million was available at September 30, 1998.  The credit lines
are uncommitted and unsecured with interest rates below the
prime rate.

     The changes in cash flows from operating activities are as
follows (in thousands):

                                                     Nine Months Ended
                                                       September 30,
                                                       1998 vs. 1997
                                                      ---------------
Increases/(Decreases):
Net Income                                                 ($3,583)
Depreciation and Amortization                                  895
Provision for Losses on Accounts Receivable                    (16)
Revenues and Fuel Costs Deferred - Net                        (792)
Deferred and Non-Current Income Taxes and
 Credits - Net                                                 661
Environmental Remediation Costs - Net                        1,935
Accounts Receivable                                          4,136
Inventories                                                     80
Prepayments and Other Current Assets                           786
Prepaid and Accrued Taxes - Net                             (5,974)
Accounts Payable and Other Accrued Liabilities             (20,581)
Other - Net                                                 (4,412)
                                                       ------------
      Decrease in Net Cash from Operating Activities      ($26,865)
                                                       ============

     Depreciation and Amortization are non-cash charges to income
and do not impact cash flow.  Changes in depreciation cost
reflect the effect of additions and reductions to fixed assets.

     Increases in Revenues and Fuel Costs Deferred - Net reflect the
impact of overcollection of fuel costs or the recovery of
previously deferred fuel costs.  Decreases reflect the impact of
payments or credits to customers for amounts previously
overcollected and the undercollection of fuel costs resulting
from increases in natural gas costs.

     Increases in Deferred and Non-Current Federal Income Taxes and
Credits - Net represent the excess of taxes accrued over amounts
paid.  Decreases reflect the impact of taxes paid in excess of
amounts accrued.  Generally, deferred income taxes related to
deferred fuel costs will be paid in the next year.

                                     SJG-20

     Changes in Environmental Remediation Costs - Net represent the
difference between remediation expenditures and amounts
collected under the RAC and insurance recoveries.

     Changes in Accounts Receivable are generally weather and price
related.  Changes impact cash flows when collected in subsequent
periods.

     Changes in Inventories reflect the impact of seasonal
requirements, temperatures and price changes.

     Changes in Prepaid and Accrued Taxes - Net reflect the impact
of changes between taxes paid and taxes accrued.  However,
significant timing differences exist in cash flows during the
year.  In 1997, SJG paid the full year's Gross Receipts &
Franchise Tax (GRAFT) on April 1 and amortized the remaining
prepaid tax over the remainder of the year on the basis of gas
volumes sold.

     As stated in Note 1, on January 1, 1998, the GRAFT was replaced
with a 6% State Sales and Use Tax (SUT), a 9% State Corporate
Business Tax (CBT) on income before taxes and a Transitional
Energy Facilities Assessment (TEFA) on volumes of gas sold and
transported.  The TEFA will be phased out over five years
beginning January 1, 1999.  Approximately 50% of the new taxes
are paid in monthly installments during the first six months of
the year and the principal portion of the remaining taxes are
paid on June 25, 1998, and on May 15 of each year thereafter.
SJG uses short-term borrowings to make these tax payments which
result in a temporary increase in the short-term debt level.

     Changes in Accounts Payable and Other Accrued Liabilities
principally reflect a change in gas inventory purchasing
practices mandated by the BPU and the impact of timing
differences between the accrual and payment of costs.

Regulatory Matters

     Rate Actions

     On January 27, 1997, the BPU granted SJG a total rate increase
of $10.3 million.  The $6.0 million base rate portion of the
increase was based on a 9.62% rate of return on rate base, which
included an 11.25% return on common equity.  The majority of
this increase comes from residential and small commercial
customers.  Part of the increase is recovered from new
miscellaneous service fees which charge specific customers for
costs they cause SJG to incur.  Additionally, SJG's threshold
for sharing pre-tax margins generated by interruptible and
off-system sales and transportation (Sharing Formula) was
increased from $4.0 million to $5.0 million.  SJG keeps 100% of
pre-tax margins up to the threshold level and 20% of such
margins above that level.  Later in 1997, the $5.0 million
threshold was increased by $500,000 which is the annual revenue
requirement associated with the completion of construction on a
specified pipeline interconnection.  At the beginning of 1999,
this $5.5 million threshold will increase by another $2.3
million, also representative of the annual revenue requirement
associated with major construction projects.  On October 9,
1998, the BPU approved a revision to the Sharing Formula as part

                                     SJG-21

of an agreement to modify SJG's Temperature Adjustment Clause
(TAC).  The revision credits the first $750,000 above the
applicable threshold level to the Levelized Gas Adjustment
Clause (LGAC) customers.  Thereafter, SJG keeps 20% of the
pre-tax margins as it has historically.

     Rates of return are calculated by weighting SJG's individual
capital cost rates by the proportion of each respective type of
capital.  This requires selecting appropriate capital structure
ratios and determining the cost rate for each capital component
as determined in each rate proceeding.

     In setting a rate of return, the BPU must provide a utility and
its investors with a return that is commensurate with the risk
to which the invested capital is exposed so that the utility has
access to the capital required to meet its public service
responsibility.

     Also on January 27, 1997, the BPU approved SJG's request for a
$2.5 million revenue reduction through the TAC.  This is the
standard BPU procedure used to credit customers with previously
collected revenues which were in excess of those allowed by the
TAC (See "Energy Adjustment Clauses").  This revenue reduction
reflects the TAC's normal operation, as does the BPU's
confirmation of the decrease.

     On September 9, 1997, SJG filed with the BPU to adjust rates by
replacing the GRAFT with SUT, CBT and TEFA components (See
"Liquidity").  The new rates became effective January 1, 1998 on
an interim basis and were made final effective July 13 , 1998.

     In September 1996, SJG filed to reduce rates through the
1996-1997 LGAC reflecting a $1.4 million decrease in natural gas
costs.  Updated 1996-1997 LGAC year results were rolled into the
1997-1998 LGAC which was filed with the BPU in September 1997.

     On September 12, 1997, and September 8, 1998, SJG made its
annual LGAC, Temperature Adjustment Clause (TAC) and Demand Side
Management Clause (DSMC) filings with the BPU.  The LGAC and
DSMC cover the period November 1 through October 31 of each
year.  The TAC period runs from October 1 through May 31.  In
the 1997-1998 filing, the company requested a $4.7 million
increase in the annual LGAC recovery which includes the
1996-1997 LGAC year results referred to above.  SJG updated this
amount to $7.0 million in August 1998 and included this amount
in its 1998-1999 LGAC filing.  The 1998-1999 LGAC filing
requested a decrease in rates of $414,000.  The company also
requested resolution of prior year filings along with the
1998-1999 filing.  All filings are still pending at the BPU.

     On March 5, 1998, the BPU approved new appliance service rates.
The new rates are competitive with those of other service
providers in New Jersey and are designed to increase earnings
and cash flows to SJG over the current rates.  In April 1998,
the BPU also authorized SJG to offer new appliance service
contract plans and to service electric air conditioners.

                                     SJG-22

     On June 8, 1998, SJG filed a petition with the BPU requesting a
change in the way in which the TAC operates.  The request was
granted on October 9, 1998.  As a result, SJG will experience
reduced fluctuations in income when temperatures are warmer or
colder than normal.

     On July 31, 1998, SJG filed a motion to further unbundle
natural gas service.  The BPU's Order of June 26, 1998, which
expanded the current residential transportation pilot program,
directed SJG to file a proposal in which full residential
unbundling would take place on or before January 1, 1999.  Many
of the issues related to residential unbundling also relate to
the commercial and industrial transportation program.
Therefore, the motion encompasses issues surrounding both
programs.  A proposal to completely unbundle natural gas service
on SJG's system is expected to be filed with the BPU in November
1998.

     Environmental Remediation

     SJG incurred and recorded costs for environmental clean up of
sites where SJG or predecessor companies operated gas
manufacturing plants.  SJG terminated manufactured gas
operations at all sites more than 35 years ago.

     Since the early 1980s, SJG has recorded environmental
remediation costs of $91.8 million.  The company has spent $41.1
million as of September 30, 1998.  SJG, with the assistance of
an outside consulting firm, estimates that future costs to clean
up the sites will range from $50.7 million to $150.6 million.
The company recorded the lower end of this range as a liability.
It is reflected on the Condensed Consolidated Balance Sheet
under the captions "Current Liabilities" and "Deferred Credits
and Other Non-Current Liabilities."  SJG's recorded
environmental remediation costs do not directly affect earnings
because those costs are deferred and recovered through rates
over 7-year amortization periods as allowed by the BPU.  SJG did
not adjust the accrued liability for future insurance
recoveries, which the company is pursuing.  SJG received $4.2
million of insurance recoveries as of September 30, 1998.  SJG
used these proceeds to offset related legal fees and to reduce
the balance of deferred environmental remediation costs.
Recorded amounts include estimated costs based on projected
investigation and remediation work plans using existing
technologies.  Actual costs could differ from the estimates due
to the long-term nature of the projects, changing technology,
government regulations and site specific requirements.

     As a result of the 7-year Remediation Adjustment Clause (RAC)
recovery mechanism, SJG does not expense environmental
remediation costs when incurred and defers costs to be
recovered.  SJG has two regulatory assets associated with
environmental costs.  The first regulatory asset is titled
"Environmental Remediation Cost: Expended - Net."  These
expenditures represent what was actually spent to clean up
former gas manufacturing plant sites.  These costs meet the
requirements of FASB No. 71, "Accounting for the Effects of
Certain Types of Regulation."  The BPU allowed SJG to recover
these expenditures through July 1996 and petitions to recover
these costs through July 1998 are pending.

     The other regulatory asset titled "Environmental Remediation
Cost: Liability for Future Expenditures" relates to estimated
future expenditures determined under the guidance of FASB No. 5,

                                     SJG-23

"Accounting for Contingencies."  This amount, which relates to
former manufactured gas plant sites, was recorded as a deferred
debit with the corresponding amount reflected on the balance
sheet under the captions "Current Liabilities" and "Deferred
Credits and Other Non-Current Liabilities."   The deferred debit
is a regulatory asset under FASB No. 71, because the BPU's
intent, as evidenced by its current practice, is to allow SJG to
recover the deferred costs after they are expended.

     SJG files with the BPU to recover these costs in rates through
its RAC.  The BPU has consistently allowed the full recovery
over 7-year periods, and SJG believes this will continue.  As of
September 30, 1998, SJG's unamortized remediation costs of $21.3
million are reflected on the balance sheet under the caption
"Regulatory and Other Non-Current Assets."  Since BPU approval
of the RAC in August 1992, SJG has recovered $15.6 million
through rates as of September 30, 1998.

     On July 31, 1996, 1997 and 1998, SJG filed with the BPU to
recover an increase in remediation costs expended from August
1995 through July 1998 totaling $4.5 million.  The BPU approved
the 1996-1997 Remediation Adjustment Clause (RAC) filing on
October 9, 1998.  The 1997-1998 RAC filing has been updated and
the results were included in the 1998-1999 RAC filing.  Both
filings are still pending at the BPU.

     Other Regulatory Asset Recovery

     The adoption of FASB No. 109, "Accounting for Income Taxes," in
1993 primarily resulted in creating a regulatory asset and a
deferred income tax liability.  As a result of positions taken
in the 1994 rate case, the amortization of the asset is being
recovered through rates over an 18-year period which began in
December 1994.  Also, FASB No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," adopted by the
company in 1993, requires an accrual basis of accounting for
retiree benefit payments during the years of employment.  The
company elected to recognize the unfunded transition obligation
over a 20-year period beginning in 1993.  The majority of the
postretirement benefit costs were previously recoverable by SJG
through rates on a pay-as-you-go basis.  A December 1994 BPU
order provided for partial recovery of costs associated with
FASB No. 106 and prescribed continued deferral of unrecovered
costs.  Beginning January 1, 1998, the BPU approved full
recovery of the net periodic benefit cost as well as recovery of
the regulatory asset over a 15-year period.   In 1995, an
external trust was established towards funding postretirement
benefit costs.  Rate recovery in excess of SJG's pay-as-you-go
requirement is contributed to the trust and provides no
operating benefit to SJG except to the extent that trust income
reduces future net periodic cost.  Gross contributions to the
trust amounted to $.9 million and $2.7 million for the three and
nine months ended September 30, 1998, respectively.  The balance
of the regulatory asset amounted to $5.7 million at September
30, 1998.

                                     SJG-24

     Other

     SJG is subject to claims which arise in the ordinary course of
its business and other legal proceedings.  The company sets up
reserves when claims become apparent.  SJG also maintains
insurance and records probable insurance recoveries relating to
outstanding claims.

     A group of Atlantic City casinos filed a petition with the BPU
on January 16, 1996 alleging overcharges of over $10.0 million,
including interest.  A settlement has been arrived at in this
litigation, under which SJG will make no payments.  The group of
casinos have issued general releases to SJG, and on September 4,
1998 the petition was withdrawn.

Capital Resources

     The company has a continuing need for cash resources and
capital, primarily to invest in new and replacement facilities
and equipment and for environmental remediation costs.  Net
construction and remediation expenditures for the first nine
months of 1998 amounted to $39.8 million.  The costs for 1998,
1999 and 2000 are estimated at approximately $71.6 million,
$52.2 million and $60.5 million, respectively.  These
investments are expected to be funded from several sources,
which may include cash generated by operations, temporary use of
short-term debt, sale of first mortgage bonds, capital leases
and RAC recoveries.

     On March 21, 1997, SJG sold $35.0 million of its First Mortgage
Bonds, 7.7% Series due 2027.

     On May 2, 1997, SJG's Delaware statutory trust subsidiary, SJG
Capital Trust, sold $35.0 million of 8.35% SJG-guaranteed
Mandatorily Redeemable Preferred Securities.  The Trust holds as
its sole asset the 8.35% Deferrable Interest Subordinated
Debentures issued by SJG maturing April 30, 2037.  The
Debentures and Preferred Securities are redeemable at the option
of SJG at a redemption price equal to 100% of the principal
amount at any time on or after April 30, 2002.

     On October 21, 1998, SJG issued $30.0 million of debt under a
Medium Term Note Program established October 5, 1998.  Notes
totaling $10.0 million were issued at 6.12%, maturing in 2010,
and $20.0 million of notes were issued at 7.125%, maturing in
2018.  The net proceeds of these note issuances were used to
retire short-term debt and to fund capital expenditures.

Ratio of Earnings to Fixed Charges

     The company's ratio of earnings to fixed charges for each of
the periods indicated is as follows:

                                     SJG-25

                                                   Twelve
                                                Months Ended
          Years Ended December 31,              September 30,
---------------------------------------------   ------------
  1993     1994     1995     1996     1997          1998
  ----     ----     ----     ----     ----          ----
   2.6      2.1      2.3      2.5      2.6           2.2

     The ratio of earnings to fixed charges represents, on a pre-tax
basis, the number of times earnings cover fixed charges.
Earnings consist of net income, to which has been added fixed
charges and taxes based on income of the company, excluding the
cumulative effect of an accounting change.  Fixed charges
consist of interest charges and preferred securities dividend
requirements and an interest factor in rentals.

Other Event

     On October 14, 1998, SJI and Conectiv announced plans for a
joint customer account services venture that will begin to
provide meter reading services in southern New Jersey by the end
of the year.  The new venture will allow both companies to
capitalize on the synergies that exist because their companies'
territories overlap.  Customers should benefit from the
companies' collective ability to reduce meter reading costs.

Inflation

     The ratemaking process provides that only the original cost of
utility plant is recoverable in revenues as depreciation.
Therefore, the excess cost of utility plant, stated in terms of
current cost over the original cost of utility plant, is not
presently recoverable.  While the ratemaking process gives no
recognition to the current cost of replacing utility plant,
based on past practices, SJG believes it will be allowed to earn
on the increased cost of its net investment as replacement of
facilities actually occurs.

Summary

     The company is confident it will have sufficient cash flow to
meet its operating, capital and dividend needs and is taking and
will take such actions necessary to employ its resources
effectively.

                                     SJG-26

                          PART II    OTHER INFORMATION

Item l.  Legal Proceedings

     Information required by this Item is incorporated by reference
to Part I, Item 1, Note 6, on pages 12, 13 and 14 excluding the
first two paragraphs of the Note, regarding contingencies,
including pending litigation and the remediation and clean-up of
certain sites which included     manufactured gas operations.

Item 6.  Exhibits and Reports on Form 8-K

     b.  No reports on Form 8-K were filed during the quarter
for which this report is filed.

                                     SJG-27

                                   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.

                            SOUTH JERSEY GAS COMPANY
                                  (Registrant)

  Dated:  November 13, 1998        By:   /s/ David A. Kindlick
                                         David A. Kindlick
                                         Senior Vice President, Finance & Rates

  Dated:  November 13, 1998        By:   /s/ William J. Smethurst, Jr.
                                         William J. Smethurst, Jr.
                                         Vice President and Treasurer

                                     SJG-28

                            SOUTH JERSEY GAS COMPANY

                               Index to Exhibits

            Exhibit Number                         Description

                  27                Financial Data Schedule
                                    (Submitted only in electronic format to the
                                    Securities and Exchange Commission).

                                     SJG-29