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* Dearth of auctions has curtailed oil exploration
* Brazil wants shale gas exploration, auction possible
* Gov't insists energy crisis not imminent despite drought
By Leonardo Goy
BRASILIA, Jan 10 (Reuters) - Brazil will go ahead with its first oil exploration auction in five years in May, Energy Minister Edison Lobão said on Thursday, as the government tries to play down the threat of an energy crisis in Latin America's largest economy.
In addition, another auction for oil rights in the vast sub-salt region off Brazil's southeastern coast will take place in November under a new regulatory framework for the industry, Lobão added. He said President Dilma Rousseff had authorized the auctions.
Private oil companies consider new concession offers essential to continue operating in Brazil, but some doubted the government would go ahead with the May auction when it was announced in September because Congress had still not passed a law defining how oil royalties would be used in the country.
The law was passed in November, in theory removing the main obstacle to offering new concessions, although Rousseff vetoed part of it.
"The royalties are no longer an issue," Lobão told reporters in Brasilia.
Two blocks have been excluded from the initial offering of 174 onshore and offshore blocks in May, however, due to environmental considerations, the director general of Brazil's ANP oil regulator Magda Chambriard said.
Speaking alongside Lobão, Chambriard said Brazil is trying to decentralize petroleum exploration. There is much potential in under-explored basins such as Parnaíba as well as in the northeastern states of Maranhão and Piauí, she said.
The lack of oil auctions in Brazil following the 2007 discovery of giant offshore sub-salt reserves near Rio de Janeiro has forced companies such as Exxon Mobil, Royal Dutch Shell, and Devon Energy Corp to reduce exploration activities.
Smaller companies are even worse off without fresh opportunities in what was once considered one of the world's most promising oil frontiers.
Shell is among the firms that plans to participate in the May auction, which will likely offer part of the so-called "Equatorial Margin" ruling along Brazil's northeast coast.
The subsalt area, defined in a new law that will apply to the November auction, includes a New York-sized zone near Rio and Sao Paulo. It contains about 100 billion barrels of recoverable oil, according to the National Oil Institute, enough to provide all current U.S. oil needs for about 14 years.
Though they represent a country with vast oil potential, Lobão and Chambriard spoke in the midst of what could become Brazil's worst energy crisis in more than a decade. Hydroelectric reservoirs are at their lowest levels in 10 years.
A drought has forced the country to rely more on thermoelectric plants, and Lobão insisted there is no shortage of natural gas to power them. He and Rousseff have dismissed talk of possible energy rationing.
"The gas law states that the Ministry of Mines and Energy must always seek ways to increase the gas supply, but today there is no shortage of gas... the gas we don't produce here we import," Lobão said.
Energy traders, however, say Brazil is paying top dollar for emergency imports of liquefied natural gas (LNG) at a time of strong demand for the fuel from Asian countries.
Brazil's energy matrix is much more diverse than it was during the last major energy crisis in 2001, when power outages cut factory output and overall economic growth. The reliance on hydro-power has dropped from about 75 percent to 67 percent in the last five years, but Brazil is trying to further diversify.
Brazil now wants to develop a shale gas industry, and Lobão said an auction for exploration rights could occur in 2013, although likely not until December.
ANP's Chambriard said Brazil's shale gas reserves have not been mapped, but studies indicate the fuel is present in the Parecis, Maranhão, Piauí, Tocantins and São Francisco basins.