The Petroleum Legislation Amendment Bill 2020 will see industry begin on-the-ground extraction in the south-west's Otway Basin and Gippsland region from July 1 2021, with all gas to be prioritised for local use over export.

The state onshore conventional gas and fracking moratorium came into effect in 2017.

A bill to enshrine the historic ban on fracking and coal seam gas exploration in the Victorian Constitution is also before the parliament.

The onshore conventional gas restart follows three years of scientific investigations by the the Victorian Gas Program.

It found an onshore conventional gas industry would not compromise Victoria's environment or agricultural sector.

However, other reports following the program's findings cast doubt over the environmental impact of the drilling.

A new report has also found banning gas installation in new buildings and subsidising Victorians to switch to electrical heating and hot-water systems would ease the threat of a gas shortage and reduce the need to drill onshore.

The state government has said production of the estimated onshore gas resources could generate as much as $310 million annually and create up to 6400 jobs over the lifespan of the projects.

The south-west of Victoria and Gippsland are the main regions to be drilled, where geoscience studies located potentially significant onshore conventional gas resources.

Resources Minister Jaclyn Symes said the legislation passed on June 16 provides the foundations for improving project transparency and community engagement.

She said the government will now work closely with communities, industry and local government to prepare the supporting regulations.

Victorians will be able to have their say on these regulations through the Regulatory Impact Statement process, which includes community consultation.

Ms Symes said gas will continue to play a role in supporting Victoria's transition to a cleaner energy future, in line with the Government's commitment to net zero emissions by 2050.

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