New York state would have some of the most restrictive rules in the country for shale gas drilling, including the hydraulic fracturing process, under a proposal to be released today by state regulators.

The draft would prevent shale gas drilling near the watersheds of New York City and Syracuse, by banning the high-volume fracturing required to pry gas from the rock formation. But implementing the policy, which is at least months in the future, would allow drilling to start elsewhere in the state.

The New York policy would require the toxic water that comes back up with the gas to be stored in water-tight tanks -- man-made lagoons and pits could not be used to store the water as they are in other states. Drilling would also be prohibited in state forests and parks and within 500 feet of primary aquifers.

One requirement that has not come up in any other recent state or federal proposal is ordering companies to look for fracturing fluids that present less risk to the environment.

"This report strikes the right balance between protecting our environment, watersheds, and drinking water and promoting economic development," Joseph Martens, commissioner of the state's Department of Environmental Conservation, said in a statement.

The release of the proposal is a step toward ending New York's de facto moratorium on drilling in the state's Marcellus Shale. The proposals will be subject to a 60-day public comment period that starts in August.

It comes two days after both chambers in the Legislature of neighboring New Jersey sent Gov. Chris Christie (R) a ban on fracturing in the state. The ban passed by lopsided margins, but Christie -- a rising star in Republican politics -- has not said whether he will sign it.

The New York rules are significant because the Empire State is the most liberal and regulation-friendly state to take on regulation of fracturing and shale drilling. Marcellus Shale drilling is going full steam in neighboring Pennsylvania, and shale drilling is quite common in other states like Texas and Louisiana.

Industry and environmentalists reacted cautiously to the proposal's release.

"We are encouraged by the apparent acknowledgement that natural gas can be developed safely and responsibly in New York with appropriate state oversight," the lobbying group America's Natural Gas Alliance said in a statement. "While the statement says certain areas of New York will be blocked from development, natural gas is produced safely in communities across our country every day and is subject to substantial state-led regulatory oversight."

Kate Sinding, who follows fracturing issues in New York for the Natural Resources Defense Council, stressed that even though enactment of rules would allow drilling to begin, that is months away at the least.

"If done right, the ongoing process in New York continues to hold out the best opportunity to establish a national, and even international, model of how taking a cautious approach to proposed new fossil fuel development can protect people, communities and the environment at large," Sinding said.

Industry analyst Kevin Book said the rules could crimp development once any moratorium is lifted, since they stand to be more restrictive than previous draft rules floated by the state.

"We had 800 pages of details last time around that added up to: unprofitable wells due to the costs of compliance with regulations governing water use, treatment and disposal," said Book, managing director of the Washington-based consulting firm ClearView Energy Partners. "Apparently we will get 950-plus pages of details tomorrow."

In fracturing, hundreds of truckloads of chemical-laced water and sand are injected into a gas well at enormous pressure to crack open rock thousands of feet below ground and release gas. The practice has generally been regulated by states, and Congress in 2005 enshrined that in law by exempting the practice from U.S. EPA regulation under the Safe Drinking Water Act.

Drillers have been fracturing wells for decades, but advances in fracturing technology that combined it with horizontal drilling have allowed producers to get oil and gas from formations once thought too difficult to tap. But the newer version requires more pressure and more water, which requires more trucks and therefore a bigger footprint on the land.

Environmentalists and neighbors of drill sites worry that the chemicals in the fracturing fluid could contaminate groundwater. Some communities have been outraged by truck traffic that crushes local roads, spills that leak toxic chemicals into nearby streams and faulty well construction that allows methane gas to seep into drinking water wells.

The industry says the fracturing process itself is perfectly safe and that the other issues are not directly caused by fracturing. Those other issues, they say, are adequately addressed by state regulators.

The Delaware River Basin Commission, which regulates development in portions of four states including Pennsylvania and upstate New York, has also put drilling on hold while it considers regulations.

The rules would also include stricter well construction standards, sizable setbacks from water wells and springs and a prohibition on drilling in floodplains. The department will also require a permit to withdraw from rivers the huge volumes of water needed for fracturing.

In addition to watertight storage tanks, the state will require tracking of flowback waste and closely monitor any disposal at public water treatment facilities.

DEC's news release on the proposal says that it plans to require public disclosure of all the chemicals in fracturing fluid but does not say how detailed that disclosure will have to be and does not explain the process it is planning to protect what companies consider to be trade secrets.

The proposal seeks to clamp down on the air pollution that has begun plaguing some drilling zones by requiring pollution controls on the engines used at well sites. It will also restrict the practice of flaring some of the gas.

And Martens is planning to form an advisory panel of environmental and industry experts that will oversee regulation of drilling.

DEC says banning fracturing in the two city watersheds reverses the agency's 2009 draft report, which would have permitted drilling in those watersheds. Water flows unfiltered from those areas to New York City and Syracuse.

Nathanial Gronewold contributed to this report