The Deputy Premier, Andrew Stoner, signed a memorandum of understanding with the company this week, designating it a ''strategic energy project'' and guaranteeing a final decision on whether or not to approve the project by January 23 next year.

The project, which is to be built in environmentally sensitive forest and scrubland, will extract gas worth $2 billion and involve drilling hundreds of gas wells and building a large network of roads and pipelines.

Mr Stoner said the project had the potential to supply between 20 and 50 per cent of the state's gas needs, and an approval by next year would mean the gas could start flowing by 2017.

''Importantly the agreement does not pre-judge or bypass the state's rigorous assessment processes for projects of this nature,'' he said.

The government has previously sued Santos over a series of polluted water leaks, spills and falsified records that appeared to cover up sloppy work practices on the site, which hosts a small number of test wells.

The water contamination took place in 2010 and 2011, when Santos was a shareholder in Eastern Star Gas, which was then the main operator at the site. Santos took over in November 2011, and has since been trying to address the problems, which include the safe disposal of large amounts of saline water pumped to the surface along with gas.

Farmers and environmental groups, some of which have complied their own reports about alleged environmental damage in the Pilliga woodland, questioned the need for the project.

''This agreement has the potential to set a dangerous precedent for future fast tracking of gas projects which our farmers and rural communities just won't swallow,'' NSW Farmers president Fiona Simson said.

She said farmers would be concerned if the fast-tracked planning process prioritised gas drilling over agriculture.

A Wilderness Society spokeswoman, Naomi Hogan, said the number of polluted water leaks meant Santos was ''playing Russian roulette'' with clean water.

Greens MP Jeremy Buckingham said he would refer the MoU to the Independent Commission Against Corruption as it ''undermined the integrity of the planning and assessment process''.

Protesters have been picketing the site, in some cases for months, and a 52-year-old farmer was arrested there this week.

Santos said it was working to address community concerns.

''Santos employees and others that work with us will continue to treat the local community with respect and actively engage with them as the [project] develops,'' said the company's vice-president, James Baulderstone.

''We confirm our long-stated position that we will not come onto a farmer's land to drill a well without their consent,'' he said.

''While we acknowledge there are segments of the broader community that hold different views on the importance of developing NSW natural gas resources, we ask that they also respect landholders' right to decide to work with Santos without undue harassment and intimidation.''