China National Petroleum Corp and China Petroleum and Chemical Corp are the only domestic companies with significant natural gas development experience and pipeline capacity.

"CNPC has achieved some progress in the exploration of shale gas in the Sichuan Basin, but it has been reluctant to prioritize shale gas because of a lack of technology and high costs," she said.

Only two Western oil majors - Royal Dutch Shell Plc and Chevron Corp - are exploring for shale gas in the country, working with Chinese partners.

"The next steps must involve measures to further improve technology standards ... and cooperation with foreign companies to attract investment and funding," Wang said.

Given the uncertain business prospects, most foreign investors are adopting a wait-and-see approach.

Gerald Morton, general counsel and vice-president of business development at United States-based Carrizo Oil & Gas, said that many foreign shale gas companies are being cautious, despite their readiness to invest in China's shale gas market.

"Regulations from the government are still unclear," he said. "We need to find a Chinese partner to tap into the market."

China's third auction for exploration rights for shale gas blocks is expected to open at the end of this year, at the earliest, with results to be released in 2014.

The scale will surpass the total of the previous two rounds, a source close to the National Development and Reform Commission said.