According to the US Energy Information Administration (EIA) report in 2013, China technically has the world's largest recoverable shale gas resources with resources amounting to as much as the USA and Canada combined. This was a notable change compared to the 2011 report and could potentially have a huge impact on the future of the country's energy, significantly reducing its dependence on imported energy.

Top 10 Countries with Technically Recoverable Shale Gas Resources: 2013 report
 
Source: EIA

China has a huge potential for the development of shale gas fields. According to a report published by the EIA in June 2013, the country had notably larger shale gas reserves than those estimated in 2011. The report indicated that China's recoverable shale gas reserves stood at 1,115 trillion cubic feet – the largest in the world and as much as the USA and Canada together.
The Tarim Basin in the northwest, the Ordos Basin in north-central China, and the Sichuan Basin in the southwest are China's three largest shale deposit basins. Natural gas can be extracted through the technique of “hydraulic fracking” - the process of drilling and injecting fluid into the ground at a high pressure in order to fracture shale rocks to release natural gas.
However, the country faces several obstacles in the development of these resources from a lack of development in fracking techniques to the infrastructure necessary to transport gas across the country. In addition, fracking requires large quantities of water – a resource that is scarce in the country.

Implications

As the world's largest energy user and second largest importer of energy, China would significantly benefit from the development of its shale gas basins reducing its dependence on imported energy. In 2012, China's primary energy consumption stood at 2.7 billion tonnes of oil equivalent, up from 1.9 billion tonnes of oil equivalent in 2007.
China's energy import bill would also come down over a period of time as the dependence on imported energy reduces. Between 2007 and 2012, the country's imports of mineral fuels grew by 22.7%, to reach US$292 billion. This was higher than the Asia Pacific average of 14.9% growth witnessed during the same period.

China’s Imports of Mineral Fuels: 2007-2012
 
Source: Euromonitor International from United Nations (UN), International Merchandise Trade Statistics

China's untapped potential of shale reserves will attract investments from the world's largest energy companies boosting capital inflows. For example, Shell tied up with PetroChina in 2013 and invested US$1.0 billion to explore shale gas basins in the country. In 2012, China had the second highest foreign direct investments (FDI) inflows globally, at US$147 billion.
In the long term, the extraction of natural gas from shale basins will help China shift to cleaner energy sources and reduce its carbon footprint. China is the largest consumer of coal in the world with coal consumption of 1.9 billion tonnes of oil equivalent in 2012 accounting for 69.3% of primary energy consumption. Natural gas is a cleaner energy source than coal but accounted for only 4.8% of primary energy consumption in the same year.
The lack of development in fracking techniques makes it challenging for China to explore this untapped potential. In addition, fracking has its own challenges of using huge quantities of water, damaging the eco-system and the possibility of causing minor earthquakes thanks to deep drilling. This will exacerbate the environmental problems prevalent in China.

Prospects

China's long-term prospects for the development of shale gas reserves look promising despite challenges in the short term. China is aggressively hoping to develop its reserves of shale gas and boost natural gas production. In this regard, China's National Energy Administration has set ambitious goals of producing 230 billion cubic feet of shale gas annually by 2015, and at least 2.2 trillion cubic feet per year by 2020.
However, most experts believe that the 2015 target is unlikely to be met and the exploration of shale gas fields is significantly slower than expected. Even if China achieves its 2020 target, it is estimated to be equal to only about a quarter of the USA's current natural gas production from shale gas.
 

Euromonitor International, www.euromonitor.com