Royal Dutch Shell PLC (RDSA) and PetroChina Company (PTR) have entered into a definitive agreement to jointly develop shale gas resources in southwestern China’s Sichuan province.

This is the first joint development project in shale gas, in a bid to tap into an unconventional source of cleaner-burning fuel to meet China’s increasing fuel demand.

China was lagging the U.S. in terms of shale gas development, which is a significant contributor to the energy mix. The initiative is expected to assess China’s shale gas potential.

Shale is a sedimentary rock composed of very small particles of clay, mud and sand. It releases trapped gas very slowly. Developing shale gas resources in the Sichuan basin could potentially alleviate the scarcity in gas supplies faced by China.

Shell has had some previous exposure in China in terms of a joint venture with PetroChina, but it has experienced a rough journey while developing unconventional energy resources.

This agreement is in line with Shell’s current strategy of undertaking major investments in unconventional and deepwater integrated projects. On the other hand, it is an advantage for PetroChina as well, as natural gas is expected to be a key growth area for the company. In the near future, PetroChina’s natural gas business is likely to witness new opportunities, driven by the Chinese transition from coal to natural gas.

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