UPDATE 2-French court rejects challenge to hydro-fracking law
* U.S. firm Schuepbach Energy had challenged French "fracking" ban
* French energy minister says ruling a "political victory"
* French shale oil and gas reserves have not been established
(Adds comments by France's energy minister and oil industry lobby UFIP)
PARIS, Oct 11 (Reuters) - France's constitutional council rejected on Friday a challenge to a law banning hydraulic fracturing for exploration and production of the country's shale gas and oil.
The ruling is a boost for President Francois Hollande, who has opposed the technology alongside ecologist Greens in his ruling coalition - to the dismay of some allies who believe France is sacrificing access to a cheap source of energy.
U.S-based firm Schuepbach Energy had challenged on four counts a ban introduced in 2011 due to potential risks to the environment, which led to two of its exploration permits being cancelled in southern France.
"The constitutional council threw out these four complaints and ruled that the disputed components of the July 13, 2011 law comply with the constitution," the court said in a statement.
The Constitutional Council, made up of judges and former French presidents, has the power to annul laws if they are deemed to be unconstitutional.
France's Energy Minister Philippe Martin said the ruling meant the law banning fracking, in which pressurised water, chemicals and sand are pumped underground to release gas trapped in shale formations, was now safe from other legal challenges.
"It's a legal victory, but also an environmental and political one," Martin said at a news briefing.
The U.S. Energy Information Administration (EIA) estimates shale gas reserves worth five trillion cubic meters could lie in French soil, mainly in the Paris basin and the Rhone valley - equivalent to 90 years of current French gas consumption.
However, it had not been possible to confirm those estimates because of the ban on hydro-fracking. Other countries such as Poland saw its hopes for shale gas fade after three international firms quit after disappointing drilling results.
So-called fracking was banned in France under former President Nicolas Sarkozy on concerns it could pollute groundwater and trigger earthquakes, bringing to a halt the nascent shale oil and gas industry in France.
Jean-Louis Schilansky, head of France's oil industry lobby UFIP said it was key for the government to fully implement the law, which includes an article asking for a commission to assess the progress of fracking technologies.
After France put the ban in place, Schuepbach Energy said it had no alternative way to carry out the exploration, which led to the suspension of its two permits in the south of France.
French oil major Total is still awaiting a ruling after it separately appealed at the end of 2011 the government's decision to ban its own exploration permit by the southeastern town of Montelimar.
Industry Minister Arnaud Montebourg stirred debate earlier this year when he suggested creating a state-backed company to examine alternative exploration techniques.
(Additional reporting by Marion Douet; writing by Muriel Boselli; editing by Mark John and James Jukwey)