While the estimate remains at a low level of confidence, it rivals the reserves at Chevron's Greater Gorgon gas fields off Western Australia.

The Australian quoted Knox as saying during an investor briefing that it was too early to say whether a liquefied natural gas plant in a port such as Newcastle was being considered, or whether it would be better to pipe the gas to Gladstone or supply the NSW domestic market.

He said that while LNG was one option, supplying the domestic gas market was also an option as NSW had a power business that was going to be very strong.

Santos expects eastern Australian gas demand to double in the next 10 years as LNG plants start in Gladstone and as carbon trading results in more gas-fired power stations being built.

Knox added that in a year or so there would be a better idea of how much of the Gunnedah Basin estimate could be shored up as "contingent resources".

Santos expects to drill 20 core holes in the Gunnedah Basin over the next 18 months.

The company also raised the possibility of developing its Bonaparte Basin assets in the Timor Sea using a floating LNG plant to produce 1-2 million tonnes of LNG per year, though it says this is not the preferred option.

Santos had hoped to use the fields, which include Caldita and Barossa, to justify a second LNG plant in Darwin, but it is now talking of joining with other finds.

"There is a real possibility there may be a real combination of assets playing out in this region," Santos vice-president of strategic projects John Anderson said.

"We're certainly prepared to entertain such a scenario."