If successful the initial five well drilling program will expand into a full-scale 300 well gas operation.

Sydney Gas recently completed a NSW Government-backed study of the commercial feasibility of gas production from local coal deposits in the Hunter. The study estimates that there are 673 billion cubic feet (bcf) of gas in the 100km2 study region, of which 424 bcf could be immediately targeted for commercial extraction.

Sydney Gas' chief executive officer, Dr Bruce Butcher, said that the Hunter operations will generate the first piped gas supplies available to much of the region, including Singleton and Muswellbrook.

"Sydney Gas intends to capture and put to good use the methane that is currently being wasted, benefiting the local economy, the environment and shareholders," Dr Butcher said.

In the Hunter region, gas is currently vented to the atmosphere from coal mines for safety reasons. Sydney Gas has imported and refined the necessary technology to safely and efficiently extract gas from coal seams, allowing the company to capture and utilise the resource.

The company has begun work on the $5 million pilot phase and plans to begin drilling the five production wells before Christmas. These initial wells will test the potential of gas production from the 'high production fairway' identified inside the targeted area by Sydney Gas' technical team.

Sydney Gas has planned phase two of the Hunter operations to include a further 16 wells in the first year following completion of the pilot phase, with another eight wells planned for the second year.