The agreement with JV partners ANZ Infrastructure Services and Toyota Tsusho Corporation will examine the possibility of a 400-600MW power station, to be supplied from QGC's coal seam methane reserves in southern Queensland.

The power station would supply electricity to 320,000-500,000 homes. Subject to approvals, first electricity is expected to be produced by mid 2012.

Depending on carbon pricing, the power station would take advantage of improved dry-cooling technology to use just 10% of the water needs of existing coal-fired power stations in NSW, the company said.

Development costs for the proposed power station are estimated at $500-750 million.

The JV agreement follows the QGC's proposed 820km Queensland-to-Hunter Gas Pipeline.

"From QGC's standpoint, a new power station and the accompanying pipeline would consolidate our position as a vertically integrated gas and electricity producer in major markets," managing director Richard Cottee said.

Cottee said the proposed gas pipeline would create a major hub for gas transportation.

"QGC will play a pivotal role in gas transportation between Australia's east coast, and internationally with liquefied natural gas from Gladstone," he said.

"Up to now there has been a missing link between the Queensland and New South Wales gas markets.

"A new pipeline will make the connection and contribute to the development of the domestic gas market up and down the eastern seaboard.

"Creating this hub and developing gas storage facilities as well as spot-market capabilities will bring additional benefits for QGC, boosting our gas production capacity in the lead-up to supplying the Queensland Curtis LNG project."

QGC said the new pipeline would start at its Berwyndale South processing plant near Chinchilla and stretch 820km to Newcastle.

The hub will also be connected via a 380km pipeline to Gladstone for the company's Queensland Curtis LNG project being developed in association with BG Group.