Shell China Exploration and Production Company (Shell) has signed a production sharing contract (PSC) with China National Petroleum Corporation (CNPC) for shale gas exploration, development and production in the Fushun-Yongchuan block in the Sichuan Basin, China.

The contract marks the first shale gas deal in China and covers 3,500km2.

Royal Dutch Shell chief executive officer Peter Voser said China has huge shale gas potential and the company is committed to making a contribution in bringing that potential into reality.

Shell stated it will apply its advanced technology, operational expertise and global experience in the project to jointly develop the shale gas resources with CNPC.

Shell procured about $1bn worth of equipment and services from China in 2011, of which $300m for its China upstream operations and $700m for its global businesses outside of China.