By Muriel Boselli
FREYMING-MERLEBACH, France (Reuters) - After slamming the door on developing shale gas over environmental concerns, France has discovered there could be at least five years worth of another cheap-to-produce gas in the former coal mining region of Lorraine.
But divisions in Francois Hollande's government, as with shale gas, are hampering efforts to develop so-called coalbed methane, a gas extracted from layers of coal too deep underground to be mined.
While environmentally oriented members of the government aim to boost renewable energy and cut reliance on oil and gas, traditional Socialists keen to create jobs are pushing for cost effective energy sources.
"This is 'Made in France' gas," Industry Minister Arnaud Montebourg told journalists last month, using a slogan from his campaign to encourage consumers to buy French goods.
Known to wary coal miners as "firedamp", coalbed methane was the flammable gas that got trapped in pockets between the coal and often triggered lethal underground explosions.
Montebourg sees coalbed methane as a cheap energy source that could help prevent French businesses from offshoring in search of lower costs and believes France could be a producer in just a few years.
But in his office in Freyming-Merlebach, in the heart of the Lorraine coal basin some 400 kilometers (250 miles) east of Paris, the head of the British company that holds the region's research permits is worried.
Frederic Briens, chief executive of European Gas Limited (EGL), is concerned that the energy source will not see the light of day in France.
Mired in governmental red tape, EGL has been waiting on one required permit since 2008, had another expire in 2011 and faces expiry of a third at the end of this year.
"The situation is quite dramatic," said the 53-year-old Briens, who returned to Lorraine in 2011 after a failed attempt to develop coalbed methane in the region in the 1990s.
"It's going to be a very difficult period because it is very hard to commit financially when you have no guarantee... We need political will."
Despite repeated requests, Briens has not been able to present his project to Energy and Ecology Minister Delphine Batho, who like Montebourg is required to stamp all oil and gas research production permits.
EGL believes sites in Lorraine and Nord Pas de Calais (Northern France) hold accessible gas resources of at least 200 billion cubic meters, or five times the amount France uses on average per year.
The company's frustration is that the process has been caught up in the fallout over fracking, despite the fact the drilling involved is quite different.
Unlike shale gas, coalbed methane does not always require fracking, which was banned in France in 2011 on concerns the drilling technique could pollute groundwater and trigger earthquakes.
"We have to be clear that we don't need hydro-fracking to extract that gas," Briens said.
A source at the Energy Ministry said the reason why ELG had not had its permits renewed was bureaucracy.
"Those reviews are carried out without a preconceived idea and they are following their course," the source said. "Bureaucracy is sluggish and this is unfortunate. It's something we will review when we reform the mining code."
Reform of France's Napoleonic-era code is due to take place at the end this year.
EGL has raised funds from private investors, mainly wealthy industrialists, but while they showed initial interest in the project they were wary of investing in a country whose government had already turned its back on shale gas.
"Our response was to say that the region and the state want the project to advance and they will themselves help financially," Briens said.
Coalbed methane already contributes some 10 percent of U.S. gas output and is set to make up a growing share of unconventional gas in Australia, China and Canada in the next 25 years, according to the International Energy Agency (IEA).
Standing by the company's small gas exploration drill hole near the village of Folschviller, Briens said there was no local opposition to the project, quite the contrary.
"They have only bad news here so the project does give back a bit of hope," he said.
Batho, who requested an ecological enquiry on the issue, says she is yet to be convinced by coalbed methane.
"It has not yet been proved that it is possible to produce it profitably," she told journalists on the sidelines of a news briefing.
Yet according to several industry sources, Batho's resistance might reflect concern that Montebourg's support for coalbed methane is part of an effort to later back the exploration for shale gas.
"Even if it appears easier for the (energy minister) to accept coal gas, she may fear getting caught in a trap that would lead back to shale gas," one industry expert said.
'MAKES GOOD SENSE'
Since the coal at some 1,000 meters below ground is permeable and crumbly, experts say the gas in Lorraine will be cheap to extract with no need for expensive hydro-fracking used in most parts of the world.
"In Lorraine operators are hoping that the gas will escape naturally and since the coal is supposedly very permeable, it should be easy for a lot of gas to migrate towards the well," said Karim Ben Slimane, head of mining security at France's BRGM geological research office.
"But the potential described (by EGL) has to be confirmed by three or four drills," he said.
While France's 58 nuclear reactors meet 75 percent of its electricity demand, it imports all of its gas, mainly from Norway, the Netherlands, Russia and Algeria under expensive oil-indexed long-term supply deals.
As a result, French state-controlled gas tariffs for households have jumped by around a third since 2008.
European gas prices are three times those in the United States, where the shale gas boom has cut gas prices in half in four years.
This has helped nurture a kind of "re-industrialization" which Hollande has put at the centre of his own economic policy.
Laszlo Varro, head of gas at the IEA, said that while prospects for gas locked in rock were uncertain in Western Europe, such projects could make economic sense in a region so heavily dependent on costly imports.
"Even a non-conventional gas project which would be hopelessly uneconomical in the U.S. would still make good sense in Europe," he said. ($1 = 0.7474 euros)
(Additional reporting by Marion Douet; editing by Mark John and Jason Neely)