Contact chief executive Steve Barrett and Genesis chief executive Murray Jackson announced the formation of the alliance today, saying the joint action was "a logical approach to solving a potential shortfall in New Zealand's energy supplies" later this decade.

They said New Zealand faced a gas supply shortfall from 2008-2010, though EnergyReview.Net has said this could occur as early as 2005-06 if formerly largest user Methanex manages to keep its Taranaki methanol plants running at even partial capacity.

Barrett and Jackson said it was far from clear if new gas discoveries and more renewable energy would be enough to "fill the gap" left by the fast depleting Maui field.

"To fill any remaining energy deficit, New Zealand faces two choices: coal or liquefied natural gas. Each of these options poses major challenges in terms of large financial commitment and long lead times.

"Both are viable from a technical perspective, but we believe that LNG is likely to be the preferred option based on present policy settings," the bosses added, referring to this government's proposed carbon taxes from 2007.

"Our calculations suggest that LNG can be used to produce electricity at approximately the same cost as coal-fired, wind and hydro-powered stations, assuming a moderate carbon charge. It has the further advantage that it could be used in conjunction with new, smaller natural gas fields in New Zealand."

The men said their companies, as the two largest gas customers, were the logical parties to be progressing an LNG development. "Between us, we also account for 95 percent of the gas used in electricity generation and supplied to retail and industrial customers."

The companies had a common interest in ensuring that the country's future generation needs were met in the most cost-effective and responsible way possible.

"That is why we are formalising an arrangement between our companies to jointly examine LNG supply sources, and the feasibility of using LNG to run thermal power stations in New Zealand."

Contact and Genesis would be conducting a full feasibility study of LNG as an alternative fuel source for New Zealand - including alternative supplies, onshore facilities, likely sizes and costs of any regasification plants suitable for New Zealand, and access to existing infrastructure.

The study is also expected to determine whether it is better to site any LNG receiving facility close to existing and under-utilised infrastructure in Taranaki - or close to growth areas such as Auckland-Northland.

Jackson and Barrett said they expected to know the most likely scenarios by next March.

LNG imports were first mentioned at the 2002 NZ petroleum conference, when several Royal Dutch Shell executives predicted gas prices here would move to the "global norm" of $US3 per Gigajoule, about the same price as LNG exported from the Northwest Shelf.

It is known Shell New Zealand is investigating several sites around the North Island for the location of any LNG regasification plant and is also holding one-day LNG "seminars" for interested parties.

Commentators have praised the Contact-Genesis initiative - "that's terrific," one told ERN today.