* Region supplied 5 percent of French oil needs in 1920s
* Very small volumes produced today, but highly profitable
* Suspicion surrounding shale gas holds back permits
By Gilbert Reilhac
Merkwiller-Pechelbronn, France, Oct 1 (Reuters) - S ustainably high oil prices have lured small oil explorers back to Alsace, the cradle of the French oil exploration industry that gave birth to corporate giants such as Schlumberger.
The activity near the Rhine on the German border does not amount to an oil boom. The region provides 1 percent of French oil production, which is just under 2 percent of European output.
Nonetheless, 13 wells are pumping, two exploration permits have recently been granted and more are being reviewed by the French administration.
"For us, Alsace was a sleeping beauty," said Stephane Touche, whose company Millennium Geo-Venture holds the two recent exploration permits and has applied for five more.
Among its advantages, the region's oil reserves are already completely mapped and are very close to the surface. Oil leaks have long provided a favourite mud-bath playground for wild boars in the Alsatian forest.
Oil production in Alsace started in the 18th century and peaked in the 1920s, when more than 650 wells and four refineries supplied 5 percent of French oil needs and provided work for 3,000 people around Merkwiller-Pechelbronn, 50 km north of Strasbourg.
In that era, the Schlumberger brothers carried out the first electrical well log and created the company.
The drop in oil prices and large discoveries in what was then French Sahara led to the end of the region's oil industry in the 1960s.
The Rhine valley has produced about 80 million barrels of oil so far, Touche said.
Millennium recently drilled its first well near Soufflenheim, and production is expected to start this autumn. The 46-year-old engineer founded the company with investors from Norwegian company Moore Energy, which has applied for more licences in the Paris basin for conventional oil and gas.
Another advantage for the oil industry is that French taxes are light by comparison with more established oil-producing countries. Crude production in France becomes commercially viable at around $70 a barrel, according to industry figures.
"A barrel produced in France is 10 to 20 times more profitable than a barrel produced in Africa," said Philippe Labat, who founded a small company called Oelweg and runs a well near Oberlauterbach.
The 60-year-old had been a production engineer at Elf, now known as Total, when it tried and failed to revive French oil production in the 1980s.
Oelweg, which has applied for three more permits in Alsace, has re-opened a well abandoned by Elf and has added a heater to improve its productivity.
The beam pump, surrounded by corn fields, produces 10 barrels per day with only one part-time worker, giving Oelweg a net profit of 163,500 euros ($207,400) in 2012 on revenue of 375,000 euros.
Since the closure of the region's Reichstett refinery in 2011, oil from Alsace is send to the Karlsruhe refinery in Germany. "Thanks to Alsace, France exports crude oil," Labat quipped.
The French authorities have not made oil exploration any easier in recent years, however. France banned hydraulic fracking in 2011, and fears about shale gas among environmentalists and the public have made even conventional oil drilling suspect.
Last year, a request by U.S. firm Hess Corp to explore for shale oil and gas in the Paris basin, France's main production area, was rejected by the government despite assurances it would not use fracking.
The fracking technique, which involves pumping water and chemicals underground, was banned under former President Nicolas Sarkozy due to concerns over the environmental impact including possible contamination of groundwater and earthquakes.
The ban was upheld by the constitutional court in 2013, after a challenge by another U.S-based company, Schuepbach Energy, which held two permits that were cancelled.
French oil lobby UFIP estimates that 112 hydrocarbon permit requests are currently frozen by the French administration, having been withheld sometimes for several years, although a few have been awarded this year.
But the debate about oil and gas exploration on French soil shows no sign of abating. Sarkozy, in a policy U-turn, came out in favour of shale gas in his first political rally since his return to French politics this month, while energy minister Segolene Royal confirmed her opposition.
Back in Alsace, however, the local population has no qualms about its black gold. "It's part of our history," the mayor of Soufflenheim, Camille Scheydecker, said. (1 US dollar = 0.7883 euro) (Writing by Michel Rose; editing by Jane Baird)