* Shell, Sinopec to jointly study East China's Dongyingtrough
* Signing is Shell's first shale oil deal in China
* China in initial stages of developing shale oil
* China faces tough geology, high cost to unlock shale oil(Adds background of China shale oil industry, Shellconfirmation)
By Chen Aizhu
SINGAPORE, April 8 (Reuters) - Royal Dutch Shellhas entered China's shale oil sector, signing an agreement withstate-owned Sinopec to study an East China block,part of the nation's early efforts to unlock the potentiallymassive unconventional resource.
China is already in the initial stages of developing itsvast shale gas resources, with production last year making upjust 6 percent of total gas output after more than a decade ofwork. China's shale oil is at an even more basic phase due tochallenging geology and hefty development costs, experts said.
Shale oil makes up less than 1 percent of China's crudeoutput after several years of development, according to AngusRodger, research director of Asia-Pacific upstream at WoodMackenzie.
"China's shale oil has very low permeability, which meansvery low per well output that makes the economics hard to work,"said an oil and gas official with China's Ministry of NaturalResources (MNR). The official declined to be named because he'snot authorized to speak with the press.
Sinopec said on Monday it had agreed with Shell to study theDongying trough of Shengli in China's eastern province ofShandong, without giving further details.
Shell confirmed the joint study agreement, but did not offerfurther comment.
That makes Shell one of the few international oil and gasexplorers venturing into China's shale oil sector, and followsthe Anglo-Dutch company's exit from shale gas drilling inSichuan province in the southwest after spending at least $1billion and getting unsatisfactory results.
Unlike shale gas resources, which are highly concentrated inSichuan, most of China's shale oil is trapped in eastern regionssuch as the Songliao and Bohai Rim basins. North China's Ordosand Junggar basins are also believed to hold large shale oilresources, the experts said.
The Dongying trough is part of the Bohai Rim basin, wheretop Chinese oil and gas group China National Petroleum Corp(CNPC) said in February that it is developing another smallshale oil field with an annual output of 50,000 tonnes thisyear.
In 2013, U.S. energy firm Hess Corp signed aproduction-sharing contract with PetroChina, CNPC'slisted arm, to develop the Malang block of Santanghu basin inthe northwest region of Xinjiang, China's first shale oil deal.
Hess quit the block around late 2014 due topoorer-than-expected drilling prospects and as global oil pricesplunged, said the MNR official.
"The understanding of geology, resource and the bestrecovery techniques (for shale oil) has only just begun," saidWoodmac's Rodger.
Sinopec is hoping Shell's expertise in shale oil explorationcould help the Chinese state major turn around its fortunes atShengli oilfield as the reserves at the giant conventionaloilfield are depleting rapidly, said Rodger.(Reporting by Chen Aizhu; Editing by Richard Pullin and TomHogue)
