From Bloomberg News:

By Stefan Nicola & Tino Andresen

German Chancellor Angela Merkel’s government agreed on draft regulation to allow the tapping of shale gas via hydraulic fracturing, or fracking, a practice the opposition says may harm the environment.

The legislation would outlaw fracking in water protection areas and near drinking water wells and would make environmental impact studies mandatory for new projects, Environment Minister Peter Altmaier and Economy Minister Philipp Roesler said in a joint letter obtained by Bloomberg News. The measures would permit the technique in non-restricted areas and provide “a unified legal situation,” the ministers wrote.

“This offers a good perspective for the future even if we should wait to see the actual progress,” Roesler said in a statement e-mailed today by his ministry in Berlin. While fracking offers “significant opportunities, we must always keep in view possible effects on the environment.”

Fracking is politically and environmentally contentious inGermany as federal elections loom on Sept. 22. The main opposition Social Democrats have called for a temporary ban on the practice while their Green Party allies want to outlaw it altogether. Chancellor Angela Merkel last week suggested the government may be open to the technology even as Bild reportedthat Altmaier wanted to ban the practice.

Domestic Energy

Merkel’s government is keen to develop domestic energy sources as it closes nuclear plants by 2022 and shifts to renewable power. While a successful drilling campaign would redraw the energy map across Europe, a continent reliant onRussia for about a quarter of its gas, public opposition means little headway has been made on fracking in Germany.

The government is opening the door to a potentially harmful technique, said Oliver Krischer, a Green Party lawmaker.

“Excluding drinking water protection areas is just for show,” Krischer said in an e-mailed statement. “It means that fracking is allowed on more than 80 percent of Germany’s landmass.”

BASF SE (BAS) Chief Executive Officer Kurt Bock said he welcomes the agreement on fracking in Germany, speaking today at a press conference at the chemical maker’s Ludwigshafen headquarters. Fracking shouldn’t become a “fear” topic, he said.

BASF, which gets the biggest portion of sales and earnings from its oil and gas business, is a proponent of fracking as it seeks to harness the rising cost of raw materials.

Shale Rock

Fracking involves drilling hundreds of wells and cracking shale rocks with a high-pressure mixture of water, sand and chemicals to unlock gas or oil from impermeable stone. It has been used on conventional reserves in Germany since the 1960s.

The practice is rising on the political agenda as industry tries to absorb increasing energy costs resulting from Merkel’s nuclear exit. Gas prices in Germany are now four times those of the U.S., where support for shale gas is lowering costs, Ulrich Grillo, the president of Germany’s BDI industry association, was cited as saying in the Frankfurter Allgemeine Zeitung on Jan. 28.

Germany sits on as much as 2.3 billion cubic meters (81 billion cubic feet) of shale gas, enough to boost the current output of natural gas 100-fold, according to Volker Steinbach, the head of the natural resources department of the Federal Institute for Geosciences and Natural Resources.

Companies including Exxon Mobil Corp. (XOM) have drilled test wells into unconventional natural gas reservoirs in Germany in an attempt to emulate the U.S. shale-gas boom. Fracking has been used at least 275 times at conventional gas and oil wells in Lower Saxony state, according to a study presented by theEnvironment Ministry in September