China is making a major push to unlock a new source of natural gas buried deep beneath its coal basins as part of Beijing’s larger strategy to strengthen energy security and reduce dependence on imports. State-owned energy giant PetroChina is leading the effort and believes coal rock gas could become one of the country’s most important future fuel sources.

The company estimates it could produce 30 billion cubic metres of coal rock gas annually by 2035. That figure would surpass China’s current shale gas production, which accounted for nearly 10% of the country’s total gas output last year. The development comes as China looks to diversify its energy mix while protecting itself from global supply disruptions and rising geopolitical risks.

Coal rock gas, or CRG, is currently produced commercially only in China. Extracting it requires advanced horizontal drilling and hydraulic fracturing, commonly known as fracking. PetroChina has spent more than a decade refining these technologies through its shale gas operations. Most of the reserves are located in the Ordos Basin, which stretches across three provinces in northern China.

The company describes coal rock gas as a “strategic next-phase fuel” that could contribute more than half of the country’s future growth in gas production. Analysts also see strong potential in the resource as China’s conventional and shale gas reserves show signs of slowing growth.

“CRG currently offers stronger growth potential than alternative domestic gas sources,” said Huang Tianshi, principal gas analyst at S&P Global Energy.

China is currently the world’s third-largest consumer of natural gas. Analysts expect annual gas demand to rise from the current 430 billion cubic metres to between 600 and 650 bcm by 2040. A successful expansion of coal rock gas production would reduce China’s reliance on imported liquefied natural gas, whose costs and supply risks became more visible after Russia’s invasion of Ukraine and the ongoing Iran conflict.

Greater domestic production could also lower China’s dependence on pipeline gas imports from Russia and Central Asia. It may strengthen Beijing’s position in negotiations with Moscow over the proposed Power of Siberia 2 pipeline project, which aims to increase Russian gas exports to China.

China’s journey into coal rock gas began after years of disappointment with coalbed methane production. State energy companies, mainly PetroChina, had spent decades trying to extract methane from shallow coal seams. However, the sector failed to meet expectations because of high costs and low production from individual wells. Coalbed methane currently contributes only about 5% of China’s total gas output.

The turning point came when PetroChina began drilling deeper and applying shale gas fracking technology to coal rock formations. In 2021, the company carried out a breakthrough project at the Jishen 6-7 well in the Daji field of the Ordos Basin. Engineers drilled a horizontal well nearly 3,000 metres long into rock layers located around 2,200 metres below the surface.

The use of hydraulic fracturing, which involves injecting water, sand and chemicals at high pressure, led to a commercially successful discovery. The Daji field well recorded daily production of around 100,000 cubic metres of gas. The success encouraged PetroChina to launch a larger drilling campaign across multiple basins.

According to a 2025 seminar presentation by China National Petroleum Corp reviewed by Reuters, China’s 14 coal basins may contain nearly 13 trillion cubic metres of technically recoverable coal rock gas reserves at depths reaching 6,000 metres. China National Petroleum Corp, or CNPC, is PetroChina’s parent company.

By the end of last year, China had drilled more than 700 coal rock gas wells and produced 4.2 bcm of gas in 2025, with most of the output coming from the Daji field.

“China is the first and only country that's commercially developing CRG due to the country's unique geology as its traditional coal seam gas development hits a ceiling,” Zhang Junfeng, a senior geologist at CNPC's Exploration and Development Institute, told Reuters.

PetroChina is also exploring opportunities outside China. The company recently found coal rock gas-rich layers in two appraisal wells drilled in the Bowen Basin in Queensland, Australia. PetroChina already produces coal seam gas there and hopes to apply the same technology internationally.

Despite the optimism, high production costs remain a major challenge. Extracting gas from such deep underground layers requires advanced drilling methods and expensive technology. Analysts say it is still too early to accurately estimate full production costs for coal rock gas, but they are expected to be higher than those for shale gas.

Chen Lin, an analyst at Rystad Energy, said shale gas projects in Sichuan typically break even at 1.7 to 1.8 yuan per cubic metre, while conventional gas costs between 0.60 and 0.80 yuan per cubic metre.

To reduce expenses, PetroChina plans to combine coal rock gas projects with existing tight gas and coalbed methane developments in the Ordos Basin. The company is also considering drilling deeper from older wells to access coal rock layers more efficiently.

Researchers are looking for additional ways to lower costs by improving fracking methods. This includes reducing the use of sand and chemicals or using newer technologies such as gas and electric pulse stimulation.

S&P Global Energy analysts believe coal rock gas could eventually become as economical as shale gas because China already has the infrastructure and expertise needed for large-scale development.

“China already has a mature shale gas supply chain, from rigs to fracturing fleets, and that capability is directly transferable to coal-rock gas,” said Yu Baihui of S&P Global Energy.

Yu added that coal rock gas projects would still require heavy investment, faster technological improvements, common industry standards and stronger government policy support before the sector can contribute around 10% of China’s total gas output.

Although coal rock gas is not yet included in China’s subsidy programmes for shale gas and coalbed methane, analysts expect government support to increase if more commercially successful discoveries are made in the coming years.