A Sydney university student was murdered by a former Kings Cross detective when a major drug deal went wrong, police will allege.

Former officer Glen McNamara, appeared in court on Monday afternoon charged with the murder of missing 20-year-old Jamie Gao and with a major drugs charge.

Supported by his family, the 55-year-old did not apply for bail before Kogarah Local court and it was formally refused.

Mr McNamara's associate, disgraced former detective Roger Rogerson is wanted for questioning by police but is in Queensland.

NSW detectives are flying to Queensland on Monday to talk to Mr Rogerson.

The revelations come as a body wrapped in a blue tarpaulin and possibly that of Mr Gao, has been found in the sea off Cronulla.

The body was floating about 2.5 kilometres off Shelly Beach, said Lachlan Steven, who spotted it at 7.30am while travelling from Sydney Harbour to Cronulla.

He said the body was wrapped in a bright blue-coloured tarpaulin held together by white rope. He saw two feet with "white leather runners" on.

Sources close to the investigation have told Fairfax Media the body "fits" with the events they allege happened about the time of Mr Gao's disappearance.

The University of Technology student was last seen on Tuesday when police will allege he was joined by two others in meeting Mr McNamara and Mr Rogerson in an industrial area at Padstow in Sydney's south-west.

It is understood that the meeting was a prearranged large-scale drug deal in which Mr Gao was to supply three kilograms of the drug ice.

After the men met at Arab Street, police will allege they all went to a nearby location where Mr Gao was murdered.

The head of the Robbery and Serious Crime Squad, Detective Superintendent Luke Moore, said detectives were still trying to determine what transpired during that alleged drug deal.

He said that Mr Gao had gone to the meeting voluntarily and was reported missing the next day.

Mr Gao's own car, a white Nissan Silvia sedan, was found abandoned near where he was last seen. His phone, keys and wallet were nearby.

Mr Gao was an only child from Hurstville; his mother was in Hong Kong at the time.

Foul play suspected: police

On Sunday, Superintendent Moore said the circumstances of Mr Gao's disappearance suggested foul play.

Hours later, Mr McNamara was pulled over during a traffic stop at Kyeemagh in Sydney's south and he was questioned overnight before being charged with murder and drug offences.

Mr Rogerson, 73, was a decorated senior police officer until he shot and killed drug dealer Warren Lanfranchi in 1981.

He was twice convicted for lying in court and served two separate jail terms.

Mr McNamara is a former investigator with the National Crime Authority and the NSW Police; he was a detective stationed in Kings Cross and Sydney's south. He gave evidence to the NSW Police royal commission about alleged police protection of paedophiles.

He was later accused of supplying drugs, assault, bribery and conspiring to murder, but was never convicted.

Mr McNamara's Cronulla home has been searched by police and a blue Ford Falcon XR6 was seized from his premises.

Mr Rogerson's Padstow Heights home was also searched and a car, a silver Ford Falcon, was taken away.

Police also searched a storage unit at Caringbah where a boat was taken away for forensic testing.

A third car, a silver Ford Falcon, was found at another location in Cronulla. It is this car detectives believe Mr Gao got into at Arab Road last Tuesday.

Superintendent Moore said the investigations would continue.

“Our inquiries to date have led us to conclude that Mr Gao has been murdered,” Superintendent Moore said.

“While we have charged a man with murder, this investigation will continue and we may make further arrests.

Mr McNamara returns to court in July.