As China readies for the water-intensive process of hydraulic fracturing, or fracking, to tap into massive reserves of shale natural gas, concerns are rising regarding the country's already limited water supply.

China has 25.08 trillion cubic meters of exploitable onshore shale-gas reserves, China's Ministry of Land Resources has said. But most of that gas lies in areas plagued by water shortages, says a report in China's Caixin newspaper.

To extract natural gas from underground formations, 10 times more water is needed compared to pumping equivalent amounts of oil and gas from conventional wells, said Bao Shujing, deputy director of Sinopec Petroleum Exploration and Development Research Institute's Department of Non-Conventional Energy Technology Support.

As part of its current five-year economic plan, China aims to produce 6.5 billion cubic meters of shale gas a year by the end of 2015.

To reach that production goal, 1,380 wells need to be drilled, requiring up to 13.8 million cubic meters of water, an industry expert told Caixin. By contrast, China's entire industrial sector uses about 35 million cubic meters of water annually.

The World Bank says China's per capita water availability is only one-quarter of the world average.

This water deficit is a key issue for the development of China's shale reserves says Lin Boqiang, an energy expert at Xiamen University.

"I think the reserves estimates aren't realistic, because without water how can you develop them?" he recently told the Financial Times.

Contamination of underground aquifers is also a risk with fracking.

Caixin reported an unnamed source at China's Geological Exploration Department as saying that as shale development increases, the Chinese government will likely introduce specific, shale gas drilling policies designed to protect the environment, particularly groundwater.

Yet an industry source said those policies are unlikely to be legally binding.

Even ahead of China's shale development, the Ministry of Environmental Protection says that groundwater in 57 percent of the country's 660 cities is significantly polluted.

Environmentalists have urged the Chinese government to put in place environmental standards for the country's shale gas sector.

Yang Fuqiang, a Beijing adviser on environment and climate change affairs for the Natural Resources Defense Council, warns that such rules to protect the environment are needed now before drilling accelerates.

In the meantime, Beijing is trying to jump-start shale development.

In its second auction for shale gas licenses last month, Beijing secured 152 bids from 83 companies. And earlier this month, the Chinese Ministry of Finance announced it was encouraging shale development by offering subsidies of $2.10 per cubic feet of production through 2015.