An inquiry will be held into hydraulic fracturing and its potential environmental effects, the Northern Territory Government says.

“Fracking could be the key to unlocking huge economic benefits for the NT oil and gas industry,” said Environment Minister Peter Chandler in a statement on Thursday.

The inquiry will assess environmental risks and actual environmental impacts.

“The inquiry aims to separate the actual environmental risks from the perceived risks and clear up some of the claims about hydraulic fracturing that have caused significant public concern,” Mr Chandler said.

But the gas industry’s claims around fracking should also be examined, said Stuart Blanch, director of the Environment Centre NT.

“The inquiry has to get to the bottom of the gas industry’s claims as well, because a lot of them are overblown: about how much money they’ll make, about how safe it is, about alleged benefits to global action on climate change,” he told AAP.

If fracking goes ahead on a large scale, the gas industry stands to make an enormous amount of money, and the territory government would rake in the royalties, Mr Blanch said.

“The people raising concerns about the gas industry aren’t going to make any money at all – we have no vested interest other than looking after the environment, land and lifestyle.”

He said the inquiry should examine water contamination risks, a key concern.

“In the US in places where shale gas has been developed for over a decade, there is evidence of pollution of rivers and aquifers, methane escaping, and damage to human health because of radioactive compounds deep underground being released through the fracking process that hang around in the air,” Mr Blanch said.

“When that’s around farmers, pastoralists, Aboriginal people, what does that mean for their health?”

Mr Chandler said the inquiry will produce recommendations of effective methods for mitigating environmental impacts.

“We are a government that is open for investment but those investments cannot come at the cost of our unique environment,” he said.