Efforts to tap into an ancient river beneath the Tomago sandbeds will be stepped up as part of plan to provide an alternative water source for the region.
Hunter Water has sunk 19 monitoring bores in the area over the past year to determine the volume and quality of the water trapped in the river, also known as a palaeochannel.
The channel, which was once part of the Hunter River, is located under a layer of clay that separates it from the sandbed aquifer.
Hunter Water recently received approval from the natural resources access regulator to install three larger bores for further investigation to test their water quality and production potential.
"These assessments will take between six and 12 months and provide Hunter Water and our regulators, NSW Health and NRAR, with information to assess the potential of using these bores as a source to supplement existing water supplies," a spokesman said.
"The information we're looking for is the water quality from the test bores, how well the aquifer produces water, as well as how the aquifer levels change and interact with other aquifers."
The three new bores are near existing infrastructure. If they prove viable they will be connected to pumps and pipes to Grahamstown Water Treatment Plant.
Hunter Water is hoping the project will yield the first new drinking water supply for the region in more than 50 years.
The water trapped inside the palaeochannel has not been exposed to the atmosphere for between 15,000 and 25,000 years and is stored in a layer of gravel that is several kilometres wide and 23 metres deep.
"Where we are drilling is what we think is the historic path of the Hunter River that used to come through this area back when sea levels were much lower. The sea levels came back in then we had an estuarine area that laid mud over it and then the dunes that we are currently walking on formed," Hunter Water chief executive Darren Cleary said late last year.
"The aquifer could be quite large; we think it could go up to Heatherbrae and out to the coast. We are drilling to find the full extent."
Water utilities are increasingly looking to groundwater sources as the relentless drought takes a heavy toll on traditional storages.
Perth and South Australia presently draw significant amounts of water from groundwater while numerous other projects are underway around the country.
The first inkling of the palaeochannel's existence was contained in core samples collected by the University of Newcastle and Hunter Water in the 1990s.
"It wasn't until we shared the results that we realised we could be onto something," Project consultant Professor Ron Boyd said.
The region's overall storages stood at 69.1per cent on Tuesday, up 1.8 per cent up on this time last year.
A Hunter Water recently submitted an amendment report to its environmental impact statement for the Belmont plant, part of its drought response plan.
"As we haven't fully recovered from drought, Hunter Water continues to implement its drought response measures, including water conservation programs, the operation of the Tomago Sandbeds and planning for a drought response desalination plant at Belmont," a spokeswoman said.
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She added that while there were no plans to build the plant, it would provide the region with added water security in the event storage levels drop to critical levels.
If the revised application is approved the plant would be capable of producing up to 30 million litres of drinking water a day. By comparison the existing Sydney desalination plant is capable of producing 250 million litres.
Hunter Water is also reviewing the Lower Hunter Water Security Plan. The review seeks to address risks and opportunities related to population growth, new technology and climate variability.
Two areas have been identified as potential sites for a new 160 gigalitre dam.
Walsh Point, located in the Port of Newcastle, has been earmarked as a possible site for a future desalination plant.
Consultation about the options will continue throughout this year before a recommendation about the preferred portfolio of options is made next year.
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