Energy giant Santos plans to construct a 60km pipeline to connect its Narrabri gas project, in northwest NSW, to the Hunter gas pipeline, allowing delivery to the east coast domestic market.
The steel line would be developed on farmland, the Pilliga forest and various public sites, leaving locals fearing for its proximity to the Namoi River and Murray Darling catchment.
The government in February ruled the construction of the pipeline was a "controlled action", meaning it would need approvals under environmental protection laws.
But it did not apply the water trigger - an additional safeguard that would require scrutiny of risks to water resources - because the pipeline was not deemed "integral" to the extraction of gas.
The government's decision said the pipeline was "unlikely to significantly impact those waterways", and their links to threatened species and ecological communities.
A group of farmers and community members called the Mullaley Gas and Pipeline Accord applied to the Federal Court for a judicial review of the water-trigger decision.
They argued the government was wrong in finding the pipeline was not "integral" to gas extraction.
But Justice Tom Thawley dismissed the application on Thursday, ruling a delegate for the environment minister did not err.
"In reaching that conclusion, the delegate was addressing the correct ... provisions," Justice Thawley said.
The community group, backed by legal organisation Environmental Justice Australia, said the judgment revealed flaws in nature laws allowing pipelines to be separated from gas projects.
"National environment laws are supposed to protect water resources from coal seam gas developments - but today's ruling shows those protections won't apply to this pipeline," lawyer Virginia Trescowthick said in a statement.
"Our client is deeply concerned this coal seam gas project can be sliced and diced to avoid proper scrutiny."Â
The Narrabri gas project was granted state planning approval in 2020 to extract gas from up to 850 wells across 95,000 hectares of land.
The $3.6 billion project has been wrapped up in complex environmental and heritage approvals processes for years, including challenges from the Gomeroi people.
But in late May, the Native Title Tribunal ruled the land leases be granted, finding there was significant public interest in the project if all the gas produced is supplied to the domestic market.
