Standing in the Great Hall of the People in Beijing this month, Wen Jiabao, China's premier, faced thousands of delegates at the ruling Communist party's annual congress and three small syllables passed his lips: yeyanqi, or shale gas.

It was the first time shale gas had been mentioned in the premier's annual work report, a three-hour policy speech that is mostly the same from one year to the next. The mention underscores how China's leaders put a growing priority on unconventional gas as they seek to secure resources for the world's biggest energy user.

China has some of the largest shale gas potential in the world, but is still at a nascent phase of exploration, with the extent of commercially viable reserves un-known. Beijing has encouraged the development of shale gas and other unconventionals because domestic gas resources could allow the country to import less gas and reduce carbon emissions as gas replaces coal.

If fully developed, China's shale resources could radically alter the dynamics of supply for the world's biggest energy consumer, just as shale gas has changed the situation in the US, the world's largest producer of shale gas.

A study by China's Ministry of Land and Resources says the country has potentially recoverable resources of 25tn cubic metres of shale gas, nearly 200 times its annual gas consumption.

However, when Mr Wen spoke this month, it was not the potential of shale that he focused on, it was the challenges.

He vowed the government would "tackle key problems more quickly in the exploration and development of shale gas", his first reference to shale in the government's work report. It was a subtle admission of the difficulties of developing the gas, which is extracted from shale rock using injections of highly pressurised water and chemicals.

Shale gas is technically difficult to extract and China's national oil companies are relatively new to unconventional extraction techniques.

To acquire the necessary expertise, they have invested billions of dollars in shale oil and gas projects in the US, such as Sinopec's recent $2.5bn deal with Devon Energy of Oklahoma to invest in shale oil and gas projects in the US.

At home, China's oil majors are partnering with foreign companies, including Shell and Chevron, to explore shale resources.

Scientists say the country's complex geology will be a challenge, particularly in the Sichuan basin, which contains huge gas resources but is highly fractured, making it difficult to drill the horizontal wells needed to extract shale gas.

Even after the gas is out of the ground, further obstacles remain: China lacks a widespread pipeline infrastructure that would allow it to be transported efficiently across the country. And natural gas prices, which are controlled by the state, are kept at low levels that discourage investment in exploration because oil projects are much more lucrative at current prices.

In a recent plan for the development of shale gas, the government admitted that it might be difficult to produce domestic reserves in a commercially viable way, describing economic prospects as "relatively poor".

"China's shale resources are, on average, fairly deeply buried. Shale blocks have complicated terrain, are densely populated, have challenging engineering operations, and their economic nature is relatively poor," said the policy document.

Despite these challenges, the government has clear goals for shale gas development: 6.5bn cubic metres of annual shale gas production by 2015 and more than 60bn cubic metres of shale gas production by 2020.

Subsidised prices, tax incentives and preferential land prices are all expected to be announced for shale gas in coming years to encourage development.

One wild card in China's quest for shale is water resources, because large amounts of water are required to carry out the hydraulic fracturing that breaks open the shale rocks to release the gas.

"Just because the US can succeed [in exploiting shale gas], doesn't mean that China can copy its experiences and succeed itself," explains Lin Boqiang, energy expert at Xiamen University.

"Technology is not the real issue," Mr Lin adds. "Neither is capital. The key is water. Shale gas requires a lot of water during the extraction process.

"Furthermore it pollutes water. I think the reserves estimates aren't realistic, because without water how can you develop them?"

Water issues and environmental concerns have sparked objections to shale gas development in the US, where environmentalists say that shale wells have contaminated groundwater supplies and drinking water.

No similar environmental opposition to shale gas has yet emerged in China and industry executives say that environmental concerns about hydraulic fracturing are rarely – if ever – raised.

Even so, Beijing's recent blueprint goes out of its way to lay out measures to mitigate the environmental impact of shale drilling, perhaps in anticipation of the types of protests that have occurred in the US.

On balance, China's policy makers believe shale gas will be beneficial to the environment because it will reduce carbon emissions. Natural gas is cleaner-burning than the coal that provides the great majority of the country's power.

The recent blueprint describes the benefits: if shale gas production meets its 2015 targets, it would result in annual carbon emission reductions of 14m tonnes.