A stock analyst thinks the decision by the NSW Government to sign a memorandum of understanding with gas company Santos was a good one, but it won't ensure cheap energy for NSW.

The MoU will ensure that a proposed coal seam gas project at Narrabri, in northern NSW, will be assessed within certain time frames.

NSW Energy and Resources Minister Anthony Roberts says, if it's approved, the project will help meet a predicted shortfall of gas for NSW by 2015.

But analyst Peter Strachan says, if the coal seam gas is to be utilised within NSW, consumers may have to pay a high price for it.

He says Santos has big export contracts to fill from its planned liquefied natural gas plant in Gladstone, Queensland.

"Santos is the major proponent in the GLNG project which is going to be commissioned in the first half of 2015," Mr Strachan said.

"That will ramp up in the next two years to sell about 7.5 million tonnes of liquefied natural gas per year.

"Santos is keenly out there in the marketplace looking for additional gas to pump into its LNG facility in Gladstone so they can sell into a global market."

Mr Strachan says Australian consumers will be competing with other countries for gas and that will drive local gas prices up.

"Local customers who are wanting to buy gas will be effectively competing with these big refrigeration units sitting in Gladstone," he said.

"The spot price in Asia is $19.50 a gigajoule.

"The domestic price for gas is NSW at the moment is about $5 per gigajoule, so those LNG plants can effectively buy gas in the domestic market for, say, $10-12 per gigajoule, convert it into LNG, and get it to customers for about $6 per gigajoule and still make money.

"So that means that the local consumer is going to have to match the price that Santos can afford to pay at the gate of its LNG facility.

"I think that people have got to get prepared to be paying $9-$10 per gigajoule for gas in two or three years' time.

"That's twice the current price."

In a media statement released last week, Deputy Premier Andrew Stoner labelled the Narrabri gas project a 'Strategic Energy Project', given its capacity to directly supply up to 25 to 50 per cent of the State's natural gas needs.

But Santos Energy NSW general manager Peter Mitchley says it's too early to guarantee supply.

"That would be wrong," he said.

"We are in the process of appraising our project."

As for concerns Santos would pipe the gas on to Queensland and use it for export, Mr Mitchley said the detail would be revealed in the project's environmental impact statement (EIS).

"This is about getting gas into the NSW market and into the NSW system.

"There is no pipeline being contemplated that goes north, so many people are worried about the gas being exported, the molecules for this will for this physically will go south."