US power producer Southern Co said it would buy AGL Resources for about $8 billion in cash to build out its natural gas infrastructure and lower its dependence on power generation.

The combined company will operate about 200,000 miles of electric lines and 80,000 miles of gas pipelines serving about 9 million customers, making Southern Co the No 2 US utility by customer count after Exelon Corp.

While, demand for power weakens with increased energy efficiency, demand for gas distribution is growing as prices remain subdued due to a production glut. That has prompted many US power producers to boost their natural gas infrastructure.

Through the deal, Southern will get access to AGL Resources’ 5 per cent stake in the 885-km Atlantic Coast pipeline, which moves gas from the Marcellus shale field in Pennsylvania.

'(The deal) gives Southern the opportunity to deepen its roots across the entire energy platform,' said KeyBanc Capital Markets analyst Paul Ridzon.

Dominion Resources and Duke Energy, which also have stakes in the Atlantic Coast pipeline, as well as NextEra Energy and DTE Energy have also formed joint ventures to build pipelines for natural gas.

AGL Resources distributes gas in Georgia, Illinois, Virginia, New Jersey, Florida, Tennessee and Maryland. Southern Co owns utilities in Georgia, Alabama, Florida and Mississippi. The AGL Resources deal will also support Southern Co’s shift away from coal, prompted by US environmental regulations.

Coal accounts for about 42 per cent of the company’s total generating capacity, while natural gas makes up 39 per cent. Southern Co is expected to use about 1.8 billion cubic feet (bcf) of gas per day in 2015, an increase of over 20 per cent in the past three years.

The combined company’s natural gas usage will grow to about 4 bcf per day, Southern Co chief executive Thomas Fanning said on a conference call. The deal, valued at $12 billion including debt, will form a company with 11 regulated electric and natural gas distribution centers, Southern Co said.

Citigroup Global Markets is Southern Co’s financial adviser, while Jones Day, Gibson Dunn & Crutcher and Troutman Sanders are its legal counsel. Goldman, Sachs & Co is AGL’s financial adviser.