Northumbrian Water already generates electricity from waste through advanced anaerobic digestion (AAD) at Howdon in Tyneside and Bran Sands at Tees Port.
Now it is finishing an Â£8m purification plant at Howdon, which will produce biomethane suitable for the gas grid.
The firm said the plant could produce enough gas to supply demand from 5,000 homes.
Biogas released by bacteria digesting the sewage sludge is currently used to fuel engines to create electricity, which Northumbria Water says reduces the company's carbon footprint by 20%.
Once methane has been produced by the AAD plant, it is cleaned in water towers to remove impurities and propane is added so that it matches the existing gas in the grid.
An artificial odour is added, giving it the characteristic gas smell so it can be detected for safety.
Richard Warneford, Northumbrian Water's wastewater director, said: "We are doing all we can to use the waste flushed down the toilet as a fuel and turn it into electricity and gas which people use to light their homes and cook their meals."
The firm said it would look at installing a gas production system in Bran Sands in the future.
A North East water company will soon start producing gas from sewage to feed into the grid.