The State Government has agreed to allow Buru Energy and joint venture partner Mitsubishi to explore for gas and build a pipeline in the Canning Basin, which stretches between Port Hedland, Broome and the WA's eastern border.
WA Premier Colin Barnett said the government would legislate to develop a gas pipeline to the Pilbara and ensure WA consumers had first use of any gas discovered.
"This agreement will help secure WA's energy supplies for the future," Mr Barnett said.
"It ensures gas discoveries are rapidly brought into production, and that gas is delivered to the State's domestic gas network, before any is exported."
Mr Barnett said there was enormous potential for natural gas in the 530,000sqkm Canning Basin.
The 25-year agreement, which includes a possible extension for another 25 years, will provide additional security of tenure for 1.7 million hectares covered by five exploration permits held by the joint venture.
If commercially viable gas resources are discovered by mid-2016, oil and gas producer Buru and Mitsubishi will be required to submit a plan for construction of the domestic gas project, including a pipeline connecting to the existing State gas network in the Pilbara.
Unconventional gas extraction can be carried out by several drilling techniques including fracturing rock formations to liberate gas, also known as fracking.
The US Energy Information Administration has estimated the Canning Basin's unconventional gas resources at about 229 trillion cubic feet, or around one and a half times WA's currently identified offshore resources.
Natural gas provides about 50 per cent of the WA's electricity generation.
Buru Energy and Mitsubishi will also be required to obtain state and commonwealth environmental, safety, indigenous heritage and Native Title approvals for their exploration, development and infrastructure proposals.
Last month Buru Energy stopped work at its Ungani oil project in WA after traditional owners said it had destroyed a significant Aboriginal archaeological site.
Nyikina Mangala traditional owners had demanded the Perth-based company cease operations at the project, about 100km east of Broome, where extended production testing began in March.
Unconventional shale gas production has exploded in the United States in recent years.
At 12.05pm, Buru Energy shares were two cents higher at $2.71.