Commercial production of shale gas could start in China within five years, but the country has to move fast to improve its extraction technology and lower the cost, executives from major participating companies said.

The potential huge shale gas output is likely to change China's energy consumption structure over the coming decades, said Yun Gongmin, general manager of Chinese electricity giant China Huadian Corp.

"It won't take long for China to begin large-scale shale gas exploration. I expect it to happen in less than five years," Yun said. He made the remarks on the sidelines of the annual session of the 12th National Committee of the Chinese People's Political Consultative Conference.

China Huadian was the biggest winner in the second auction of shale gas blocks' exploration rights at the end of last year. It won four blocks out of 20 scattered in central and southern provinces.

Yun said one of China Huadian's shale gas wells in Guizhou province has already generated natural gas.

"China Huadian is going to invest up to 2 billion yuan ($321 million) to explore shale gas reserves this year," Yun told China Daily, adding that Huadian is probably a non-oil company in the country to promote the shale gas business in the fastest pace.

Shale gas is a clean and efficient energy trapped within shale formations. China is estimated to have 25.1 trillion cubic meters of exploitable shale gas resources, making it the world's largest source, and exceeding the 24.4 trillion cu m in the United States.

If all gas can be extracted from the shale, it will able to meet the natural gas demand for the world's second-largest energy consumer for two centuries.

However, immature exploration technologies, environmental pollution fears and high costs have been seen as major obstacles.

Compared with the world's largest shale gas producer - the US, most of whose shale gas resources are in flatlands - China's resources are mainly in southwestern mountainous areas, said Fu Chengyu, chairman of China Petrochemical Corp (Sinopec Group).

"People said, since the US has mature technologies, why have Chinese companies not imported them and applied them to China?" Fu said. "It is because the US technology has limitations. Under our conditions, we need exploration technology suitable for areas with a height of 3,000 meters above sea level."

In addition, the US owns a well-developed infrastructure, including pervasive pipe networks. "When shale gas wells start working, it will be easy for US counterparts to find the nearest pipe access. But in China, we have to build infrastructure, which pushes up our production cost," Fu said.

He added that Sinopec's return of shale gas output in mountainous areas amounts to merely half of its previous investment, which barely makes money.

The Ministry of Finance announced a subsidy plan for the shale gas industry in November. A subsidy of 0.4 yuan will be offered for every cubic meter of shale gas developed by enterprises during the 2012-15 period. Additional incentives from local governments are allowed, the ministry said.

"China's scramble for this game-changing unconventional gas has gathered steam. But we cannot be blind and be overhasty," said Li Yizhong, deputy head of the Subcommittee for Economic Affairs at the CPPCC.

"In the process to realize our goal on good shale gas output, we should consider not only investment returns, but also environmental influence," Li said.

An increasing number of companies, large and small, have rushed into the shale gas production business. However, quite few are actually worthwhile economically in the long term, said Wang Shangxu, a professor and energy expert at China University of Petroleum.

Clear qualifications and industry specifications are urgently needed to prevent companies from swarming into the business without considering its sustainable development, he said.

Chen Limin contributed to this story.

[email protected]