GE Oil & Gas, a subsidiary of the US giant General Electric Co, said it is holding discussions with China's top three oil and gas companies about possible cooperation on the development of the country's shale gas industry.

Liu Bo, general manager of GE Oil & Gas Greater China, said the global technology and solutions provider is working on a market evaluation of the sector, which should take around 2 to 3 months to complete.

"The company will then decide on its position and direction, but it is too early to project anything more at present," he said.

The three Chinese companies involved are China National Petroleum Corporation (CNPC), China Petrochemical Corporation (Sinopec Group), and China National Offshore Oil Corporation (CNOOC).

GE's annual revenues from the unconventional natural gas are worth about $1 billion - mainly in North America - and involve 40 products and services, according to company figures.

The company established an innovation center in Chengdu, Sichuan province, in June, with shale gas research and development now considered a key priority at the site, said Liu.

Within its work there, the company said it is researching specific solutions for shale gas exploration in China, which include better, more economic ways of recycling waste water, increasing drilling efficiency, and reducing the amount of water needed for exploration.

China plans to be pumping 6.5 billion cubic meters of shale gas by 2015, reaching an annual output of 60 billion to 100 billion cu m by the end of 2020, according to the country's 12th Five-Year Plan (2011-15) on shale gas exploration.

Considered a carbon-friendly alternative to natural gas, shale gas has become an increasingly important source of energy in the United States.

However, experts say that in China, the industry still needs to develop its production expertise, dealing especially with two controversial areas. The recovery of shale gas requires large quantities of water, and its extraction can pollute local water supplies.

"Water is China's most precious resource, but it is not as much of a problem for the US, which has made huge progress in shale gas development in recent years," said Lin Boqiang, director of the China Center for Energy Economic Research at Xiamen University.

He said by using China's own existing shale gas technology, the country cannot solve those two issues.

Meanwhile, GE Oil & Gas also said on Tuesday it had signed a Memorandum of Understanding with CECEP Industrial Energy Conservation Co Ltd - a subsidiary of China Energy Conservation and Environmental Protection Group - to accelerate their cooperation on industrial waste heat recycling and power generation.

The two companies said they will work together on the west-east oil and natural gas pipeline project, owned by CNPC, to save waste heat for power generation, said Wang Xiaokang, the president of CECEP.