Royal Dutch Shell on Wednesday signed an agreement with Chinese state-run energy company CNPC to explore, develop and produce shale gas in southwest China, the Anglo-Dutch company said.

The production-sharing contract with China National Petroleum Corporation centres on a 3,500 square-kilometre (2,170 square-mile) area in Sichuan province, Shell said in a statement.

"We are delighted about this new milestone in our strategic cooperation with CNPC," the statement quoted Shell's chief executive Peter Voser as saying.

"China has huge shale gas potential and we are committed to making a contribution in bringing that potential into reality."

The oil giant did not provide a value for the agreement, which still needs government approval.

Shale gas, a cleaner alternative to coal and oil, comes from deep reserves that were thought inaccessible until the advent of new drilling methods, but extraction costs are high.

Beijing is investing billions of dollars to develop clean energy as it seeks to meet a target of generating 10 percent of its fuel needs from natural gas and 15 percent from renewable sources by 2020.

It has already been investing heavily in Canadian and US reserves of shale gas as it seeks to reduce its reliance on coal and oil imports.

But experts say China's lack of technical expertise in shale gas extraction poses a challenge to the industry's domestic development.