Energy company AGL has applied to begin fracking at four coal seam gas pilot wells near Gloucester in the New South Wales Hunter region.

It says the procedure is necessary to identify potential gas resources and assess water production volumes at the Waukivory pilot project and has rejected concerns it would damage the local environment.

If the State Government approves the application it will be the first time fracture stimulation, known as fracking, has been allowed since a moratorium was imposed in 2011.

The government released a new code of practice for the procedure in September last year and strengthened it in February to include a two-kilometre buffer zone around residential areas.

Greens mining spokesman Jeremy Buckingham says the application should be rejected.

"This fracking will occur within 600 metres of residential areas in Gloucester - that's outrageous," he said.

"The people of New South Wales need to be protected from coal seam gas and Barry O'Farrell has to deliver on his promise to create exclusion zones that apply for everyone.

"The Greens believe that approval of this fracking would break Barry O'Farrell's clear promise to keep CSG away from people's homes."

Code of practice

The state's Office of Coal Seam Gas says AGL's application will be assessed on its merits.

Its Director Rachel Connell says the application will be subject to a series of benchmarks to assess its impact on the surrounding area.

"There are very well-defined benchmarks in the Environmental Planning and Assessment Act which have to be assessed and in the code of practice for fracture stimulation," she said.

"So one of the issues that will be examined closely is potential impacts on ground water."

AGL Energy spokesman Michael Moraza says the assessments of the site have shown the impact on the environment will be either negligible, or non-existent.

"The engineering, the equipment we use is industry best practice and the wells are engineered to a very high standard," he said.

"Therefore there is almost negligible if not nil ability for any of our fluids to communicate with the environment around the wells."

CSG opponents horrified

The anti-coal seam gas Gloucester Groundswell group is horrified at the plans.

Spokeswoman Julie Lyford says AGL has no right to damage critical waterways.

"When these wells are fracked and flared the pollution that comes out of the flaring which sometimes goes on for months is quite dire," she said.

"This is a massive risk, this is the first step to the full scale industrialisation of the Gloucester Valley because without the second and third stages AGL probably won't have a viable gas industry here.

"And we're saying why are you putting this entire valley at risk?"

AGL wants eventually to drill 110 wells in the area to provide gas for Newcastle and Sydney.