The backers of a proposed project to pipe gas from Narrabri, in north-west NSW, to Newcastle, are seeking government backing to force the gas from the project to be sold in NSW, rather than be transported across state borders for export abroad.

The push comes as the manufacturing sector is gripped by surging gas prices, which have forced a number of companies to look hard at closing operations, to avoid looming losses.

Domestic gas prices have surged in the wake of the construction of several gas export projects in Queensland, which has linked east coast gas prices to international prices for the first time. As a result, large industrial users of gas have been hit by a spike in contract gas prices, as they scramble to secure supplies.

Concerns about a shortage of gas for domestic users prompted the Federal government late last month intervened to force gas companies to demonstrate

"We want the NSW government to step in and ensure gas from Narrabri can only be sold to NSW users, and cannot be moved across state borders," Garbis Simonian, the prime mover behind plans to build a new pipeline linking Narrabri to Newcastle, north of Sydney.

Government approvals have been in place for several years now to construct the so-called Hunter Gas Pipeline from Queensland to Newcastle, which would link with Narrabri.

This month, Hunter Gas Pipeline signed a memorandum of understanding with Jemena for the China-controlled utility to build and operate the pipeline, which is estimated to cost $500 million. To be privately financed, the project is conditional on the development of the Santos Narrabri Gas Project, commercial offtake agreements with customers, landholder agreements and minor permits and approvals.

"Jemena has a strong track record in pipeline development, construction and operation in Australia," Jemena general manager of business development David Green said.

Push to block Narrabri gas heading interstate