Nepal's Dailekh Petroleum Project Stalls as China Remains Silent on Crucial 'Well Testing' Phase, Government Explores Alternatives

The Nepalese government has repeatedly highlighted its commitment to expediting commercial petroleum production in Dailekh, even reiterating this priority in the current fiscal year's budget. However, a critical phase—the 'Well Testing'—which is fundamental to realizing this ambition, remains shrouded in uncertainty. The primary reason for this impasse is China's prolonged silence on Nepal's formal requests for assistance.

Nearly two years have passed since China Geological Survey submitted its preliminary findings to the Nepali government, indicating the presence of approximately 80.7 billion cubic meters of natural gas after drilling to a depth of about four kilometers in Dailekh's Jaljale area. The report strongly recommended a second phase of testing to confirm commercial viability. This crucial second phase, however, has now come to a standstill. Despite Nepal's formal appeal to the Chinese government for financial and technical support to conduct these vital tests, Beijing has yet to provide any official response, positive or negative.

This prolonged silence from China has become a significant concern for Nepali government officials and energy sector experts alike. While China has not publicly offered any reasons for its inaction, energy analysts have put forth several plausible explanations. Firstly, it is speculated that China might be conducting a more thorough evaluation of the project's economic viability. The mere discovery of underground gas is not sufficient; the cost of extraction, market demand, necessary infrastructure development, and long-term returns are equally critical factors that Beijing might be meticulously assessing.

Secondly, the implementation of large-scale infrastructure and energy projects between Nepal and China has experienced a noticeable slowdown in recent years. In this context, Beijing might be exercising increased caution regarding new financial commitments, especially for a project of this magnitude. Thirdly, China has reportedly tightened its cost-benefit analysis criteria for overseas investments in recent years. It is plausible that the Dailekh petroleum project is now being subjected to these more stringent evaluation standards.

Beyond economic and project-specific considerations, some government officials also express concerns that China might be viewing certain recent political activities within Nepal with suspicion. Specifically, allegations of Nepal's perceived leanings towards pro-Tibet sentiments and the alleged promotion of anti-China activities are thought to have prompted Beijing to adopt a 'wait and watch' policy towards the Nepali government. This cautious approach, some fear, could be impacting major projects, including petroleum exploration. As one unnamed government official remarked, "It is characteristic of China's foreign policy not to react hastily, to take every matter seriously, and not to back down once a decision is made. It is possible that the same policy is being applied in this situation."

Despite the government's budgetary emphasis on Dailekh's petroleum production, the project's allocation of resources tells a different story. For the current fiscal year, only NPR 17.8 million has been earmarked for the petroleum exploration project. Officials themselves concede that this amount is woefully inadequate to initiate the next critical phase of the project. Consequently, the Ministry of Industry, Commerce, and Supplies is now actively exploring two alternative models. One option involves establishing a separate company or an autonomous structure under the Nepal Oil Corporation, while the other focuses on attracting foreign partners or investors. Both proposals, however, are still in their nascent stages of discussion.

The initial deep drilling phase in Dailekh was successfully completed with a grant of approximately RMB 136 million from the Chinese government, equivalent to over NPR 3 billion at current exchange rates. This significant investment laid the groundwork for Nepal's first scientific deep petroleum exploration. However, project officials are now in a holding pattern, awaiting further decisions. The government's ambitious budget declarations have not been matched by adequate resource allocation. The pressing question is no longer merely whether gas exists in Dailekh, but whether Nepal should continue to wait indefinitely for China's response or actively seek new partners to advance the exploration. The answer to this pivotal question will undoubtedly shape the future trajectory of Nepal's petroleum exploration endeavors.

If China's further cooperation remains elusive, Nepal has three primary alternatives. Firstly, it could undertake the well testing phase using its own resources. This, however, would necessitate substantial investment and access to cutting-edge technology, which Nepal currently lacks. Secondly, Nepal could actively seek out other international energy companies or partners. Globally, many such projects are executed through multinational energy corporations, offering a proven model for collaboration. Thirdly, Nepal could intensify diplomatic engagement with China at a high level. The Ministry of Industry is reportedly hopeful that this critical issue will be raised during upcoming high-level Nepal-China bilateral meetings.

Energy experts emphasize that discovering natural gas in a region and achieving its commercial production are two distinct stages. Well testing is indispensable for confirming the actual gas pressure, production capacity, sustained supply, and overall economic feasibility. Without this crucial testing, a decision on commercial production cannot be made. Nepal's petroleum exploration project was established in 1982, meaning over four decades have passed, yet the project largely remains confined to data collection and preliminary research. According to the Department of Mines and Geology, Dailekh is not the only promising area; approximately 50,000 square kilometers across the country, including the Lower Himalayan region and the Chure belt, have been identified as potential petroleum exploration zones. The current stalemate underscores the urgent need for strategic clarity and decisive action to unlock Nepal's potential energy resources.