Royal Dutch Shell plc plans to invest a minimum of $1 billion a year in unconventional natural gas exploration in China, the producer’s top China executive said this week.

With the annual investment, the oil major plans to target shale reserves and coalbed methane (CBM) gas. Shell also plans to build a $12.6 billion refinery and petrochemical complex in China, which would be the largest foreign investment in the country. In addition, Shell plans to move its global CBM business unit to China this year to establish a worldwide unconventional oil and gas research hub, which would be its first research hub outside of Houston.

China’s shale reserves are estimated to be the world’s largest. A preliminary assessment of world shale reserves last year by the U.S. Energy Information Agency indicated that China has the world’s largest technically recoverable resources with an estimated 1,275 Tcf, which would be 20% of world resources and well above second-place U.S. shale reserves, which were estimated at 862 Tcf (see Shale Daily, April 7, 2011).

In March a unit of Royal Dutch Shell plc inked the first-ever production sharing contract (PSC) in China to use its technical know-how to develop shale gas (see Shale Daily, March 22). The PSC is between state-owned China National Petroleum Corp., the country’s largest producer, and Shell China Exploration and Production Co. Ltd. The companies plan to explore for shale gas in the Sichuan Basin on the Fushun-Yongchuan Block on an area covering about 3,500 square kilometers. Specific contract details were undisclosed.

The $1 billion annual investment could be increased, said Shell China Executive Chairman Lim Haw Kuang.

“If there has been an adjustment to that pledge, it could only be an upward revision,” Lim said. Securing a partner is key to developing China’s natural resources. “We need to find a partner who will not only cooperate with us well for one day or two, but also share the same development vision and direction over the next few decades.”

The decision to develop China’s shale gas doesn’t diminish Shell’s plans to import gas to Asian markets, according to a spokesman. Asia’s gas demand over the long-term is expected to outstrip supply, said Shell Canada Ltd. spokesman Stephen Doolan.

Shell Canada is developing a 24 million ton/year (mt/y) liquefied natural gas (LNG) export facility near Kitimat in British Columbia, which is the largest North American export facility proposed. Shell, which would operate and hold a 40% stake, is developing LNG Canada Development Inc. with Mitsubishi Corp., Korean Gas Corp. and PetroChina Co. Ltd., with each of the three Asian partners holding 20% equity.

The announced investment in China’s unconventional gas resources is being undertaken with China National Petroleum Corp., the parent company of PetroChina and the largest energy company in China.

“The exploration and development of shale gas is expected to grow in China, and Shell’s investments, largely with PetroChina, are reflective of that growth,” Doolan said. “However, the demand for energy in China and throughout Asia is expected to exceed domestic production. This demand for energy, coupled with the wider demand for LNG in Asia, which is likely to grow by more than 80 million tons per annum between now and 2020, underscores Shell’s intent to continue to progress the LNG Canada project.”