* Energy costs political flashpoint ahead of German election
* Shale gas revolution unlikely in Europe
* Single internal market deadline looms, progress sought
By Barbara Lewis
BRUSSELS, May 7 (Reuters) - EU heads of state and government will seek ways to limit the impact of energy costs on European competitiveness at a summit this month, a draft document seen by Reuters showed.
European industry says it is disadvantaged because of the price it pays for energy compared with the United States, where the shale gas revolution has drastically lowered costs.
The document ahead of the May 22 EU summit, which has energy and taxation on the agenda, calls for examination of the impact of energy prices and costs and action to limit the effects.
One option is developing the European Union's own shale gas resources, although this is not mentioned directly. Instead, the draft refers to safe and sustainable development of "indigenous sources of energy".
Europe's very different geography and land ownership would make it hard for the European Union to rival the United States in shale gas, but the executive European Commission is working on a framework to guide prospectors.
The leaders are expected to urge the Commission to analyse energy prices and costs in member states "with a particular focus on the EU's competitiveness" against global rivals.
The draft also points to massive investment costs in boosting power generation and networks as likely to drive up energy prices.
Arguments over energy costs have featured prominently in political debate ahead of German elections and played a part in blocking a Commission proposal to boost carbon prices on the EU market.
The Emissions Trading Scheme (ETS), where carbon prices have sunk to record lows, is not on the draft agenda, but it could be debated on the sidelines of the summit, EU sources have said.
Efforts to repair that market are also a focus of attention for the European Parliament.
Other items on the summit agenda include completion of the internal energy market, which the European Union had hoped would harmonise power and gas supplies across the 27-member union by 2014. That deadline is likely to be missed.
EU leaders also expected to support laws intended to break up energy monopolies by prising apart ownership of supplies and the infrastructure used for their delivery.
The rules aim to ensure distribution of supplies as competitively and efficiently as possible to lower costs, but they have infuriated the bloc's leading gas supplier Russia. (Editing by William Hardy)