According to Eastern Star managing director Dennis Morton, a potential long-term gas supply and purchase agreement for Macquarie Generation's Bayswater Power Station expansion could reach as much as 500 petajoules in total and increase the state’s gas consumption by 25%.

“This is a very exciting commercial development and represents a watershed for both our Gunnedah Basin gas project and for NSW,” he said.

“It could provide us with a large gas market that will underpin development of gas pipeline infrastructure and as the foundation for the large-scale development and sale of natural gas within NSW.

“NSW will at last have a truly major, indigenous source of natural gas.”

The Gunnedah project is in inland northern NSW and will have to be linked by a 300km pipeline running from Narrabri to the Bayswater Power Station, which lies about 100km northwest of Newcastle.

Macquarie Generation is Australia’s largest electricity producer and owns and operates two coal-fired power stations in the Hunter Valley – Bayswater (with a capacity of 2640MW) and Liddell (2000MW).

The two stations can produce the equivalent of 40% of the state’s electricity requirements.

Eastern Star and Gastar are in the process of commercialising the Gunnedah Basin CSM project, aiming to achieve initial certified gas reserves by the third quarter of this year.

The partners claim their PEL 238 lease contains about 17 trillion cubic feet of gas-in-place and the 256 square kilometre Bohena Project Area contains more than 3Tcf of gas-in-place.

Eastern Star holds 65% of the Gunnedah Project; Toronto Stock Exchange-listed Gastar holds the remaining 35%.