China will almost certainly fail to meet its target of producing 6.5 billion cubic meters of shale gas per year by 2015. Even so, there can be no doubt it is set to become one of the world's largest shale gas producers over the next decade.

In its latest annual outlook, published recently, BP predicts China will be the most successful country outside North America in developing shale gas by 2030. Given the country's enormous shale resources and large prospective market, coupled with its ready availability of capital and proven engineering expertise, it is hard to argue with that assessment.

Estimates vary but most analysts put China's technically recoverable shale resources at around 1,000 trillion cubic feet (tcf) (28 trillion cubic meters), which would make them the largest in the world, and about 20 percent higher than in the US (862 tcf).

China's Ministry of Land and Resources (MLR) conservatively puts recoverable shale resources at 886 tcf but the US Energy Information Administration (EIA) estimates they could be as high as 1,275 tcf.

Shale formations are also likely to contain crude and condensates but estimates of the resource have been published.

Deposits are found in six giant sedimentary basins running from east to west across the country: Songliao in the far north-east; Bohai and Ordos in the central north; Sichuan to the south; and Tarim and Junggar in the far northwest (Xinjiang). All these basins have already produced either coal or oil and gas from conventional deposits.

The Sichuan and Tarim basins are considered the most promising for exploration because their thick marine sediments were laid down on the bottom of ancient seas and have a high organic content.

Early development has concentrated on Sichuan because it is closer to the main populated areas and already has gas pipelines and other infrastructure from the development of conventional gas fields in the area.

Most of the basin is located under the provincial-level megacity of Chongqing and neighboring province of Sichuan. The Ministry of Land and Resources has granted PetroChina (in association with Shell) and Sinopec (in association with Conoco and Chevron) exploration rights for various blocks in the region.

Sinopec's first exploratory well, Qianye-1, in the Qianjiang district of Chongqing, was completed in early 2012 and flowed a significant amount of gas. Conoco has agreed to drill two more exploratory wells in Sichuan. Shell and PetroChina are drilling in their own blocks in Sichuan.

In theory, Chongqing plans to drill between 150 and 200 wells over the next three years, with more across the boundary in Sichuan. For the moment, however, progress has been very slow, which will put the target of 6.5 billion cubic meters by 2015, set out in the twelfth five-year plan (2011-2015), out of reach.

The world's second largest economy has made developing shale a top priority to cut future dependence on imported energy.

Premier Wen Jiabao tacitly admitted the program had fallen behind when he promised the annual meeting of the National People's Congress in March 2012 that the government would "tackle key problems more quickly in the exploration and development of shale gas."

China's shale program faces a number of above and below ground challenges.

China's basins are nowhere near as well explored as those in the US. Deposits are buried deeply below ground. And some observers claim the gas-bearing formations may have a higher clay content, making them harder to fracture and keep propped open ("China Drills Into Shale Gas.

Targeting Huge Reserves Amid Challenges," National Geographic, August 2012).

The Tarim basin in the northwest is thousands of miles away from the main centers of energy consumption and in one of the driest region's on earth, with little water for hydraulic fracturing.

Sichuan has more rainfall but the region is densely populated, much of it is heavily urbanized, and there is already pressure on local water resources for agriculture. In contrast to the wide open plains of North Dakota and Texas, Sichuan is mountainous, making the local topography challenging for surface hydraulic fracturing operations.

Unlike the US, China does not have an extensive network of gas-gathering and transmission pipelines nor a large eco-system of independent and innovative exploration, drilling and development companies.

The slow pace of progress and multiple challenges facing hydraulic fracturing firms have led some analysts to conclude China's shale industry will fail to live up to expectations. But it would be a mistake to write it off at this point. None of the challenges looks insurmountable, and China has plenty of capital and engineers to find solutions.

China has been drilling for and using gas in Sichuan for more than 2,000 years. The basin is home to the country's natural gas industry, according to China National Petroleum Corporation ("Status and Practices of Shale Gas Exploration and Development in Sichuan Basin" Sep 2011).

The basin already contains 113 conventional gas fields and has more than 18,000 kilometers of gas pipelines. Production hit 15 billion cubic meters (530 billion cubic feet) in 2009. Natural gas provides 16 percent of primary energy consumption in Sichuan and Chongqing compared with just 4 percent for the country as a whole.

Depth will not prevent development. The basin's most prospective layers, the Qiongzhusi and Longmaxi formations, actually lie on top of many of the conventional fields - at depths similar to the Barnett, Marcellus, Eagle Ford and Haynesville shales in the US.

Longmaxi and Qiongzhusi cover 56,000 and 80,000 square miles respectively, compared with about 15,000 square miles for the core of the Bakken and 9,000 for Argentina's Vaca Muerta. The net organically rich layers are about 200-300 meters thick, only a little less than Vaca Muerta's 325 meters.

Total organic content is around 3 percent compared with 4 percent in Vaca Muerta. But more of the organic matter has been converted into oil and gas, according to estimates published by the US Energy Information Administration ("World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States" Apr 2011).

Longmaxi and Qiongzhusi could each produce 340-350 trillion cubic feet of gas, according to EIA, compared with 240 trillion cubic feet from Vaca Muerta. The two formations combined contain more technically recoverable shale gas than any other country except the US, Argentina and Russia.

Successful development of the Barnett shale directly beneath the city of Forth Worth in Texas, shows it is possible to extract large volumes of natural gas even in heavily urbanized areas by using horizontal drilling and boring multiple wells from a single drilling pad.

PetroChina drilled and fractured its first vertical shale gas well (Wei-201) into the Longmaxi formation in April 2010, which produced a rather limited 300,000 cubic meters over 270 days. Faster flow rates were achieved from the subsequent Ning-201 well.

In March 2011, PetroChina completed its first horizontal well (Wei-201-H1) with a total depth of more than 2,800 meters and a horizontal section of more than 1,000 meters, with 11 fracture stages.

The company drilled another seven wells in 2011, and three more in conjunction with Shell, including the Yang-201 well in Fushun-Yongchuan block, which flowed up to 430,000 cubic meters per day in testing.

Still, the drilling programs remain very limited and have yet to define the play's core area. In comparison, thousands of horizontal wells have been drilled into the Barnett and Bakken shales in the US and the best areas for drilling are well known.

Large-scale production of shale gas from the Sichuan basin will not be easy. Each shale formation poses its own unique challenges, and the problems in China are formidable. But the problems do not appear worse than in other parts of the world, and the prize is enormous.