What the hell is going on in Nepal?
The methane discovery could fuel its prosperity—or burn it
Image: The Kathmandu Post
For a country infamous for exporting its workers rather than importing investment, a billion cubic metres of natural gas is a geological surprise—and a political dilemma. Deep under Dailekh’s, a remote district in western Nepal, hills sits what could be the country’s most consequential subterranean asset since it began dreaming of hydropower. If the methane reserves prove commercially viable, they could transform Nepal’s energy equation. But between the promise and the pipeline is a deep reservoir of uncertainty.
Preliminary estimates suggest the methane could power dirt-poor Nepal for decades, slimming down its dependence on imported liquefied petroleum gas (LPG) and petroleum products, which together accounted for more than $2bn in imports last year. In a country where energy has always been a fiscal and geopolitical liability—particularly in its asymmetrical relationship with India—the allure of domestically sourced gas is clear. Whether the government can deliver on that promise, however, is far less certain.
The discovery itself is not new. Dailekh has been a site of periodic interest since the 1980s with drilling and surveys surfacing in successive decades, usually fading as quickly as they emerged. What is new is the scale and confidence. Backed by a NPR 2.4bn agreement with China signed in 2019, the Department of Mines and Geology resumed serious exploration with the help of Chinese geoscientists and engineers. After delays from covid-19, access roads and (yes) land disputes, exploratory drilling reached 4,000 metres, yielding encouraging samples now undergoing lab tests in China.
Officials in Kathmandu are upbeat. If the composition and pressure readings hold, commercial extraction could begin within two years. That would be fast by Nepali standards, where infrastructure projects outlast governments. Over 100 locals have already been employed on-site; more could follow if production scales. Business groups are imagining fertiliser plants; compressed natural-gas stations; and even petrochemical spin-offs. Nepal, they hope, might finally graduate from being rich in potential to being rich. Full stop.
That assumes, of course, that everything goes to plan. It rarely does.
Now the China question
Geopolitically, the methane project deepens Nepal’s growing entanglement with Beijing. China’s involvement is partly technical: its firms are among the few with the capability and appetite to explore in such terrain. But it is also strategic. As Indian influence remains dominant in Nepal’s fuel imports and broader trade, Beijing sees an opportunity to expand its role in the energy sector as well. Already a key player in roads, telecoms and hydropower, China is now quite literally digging deeper.
The worry is not that China is involved. Rather it is Nepal has few tools to negotiate robustly. Past resource agreements, whether with India or China, have often faltered over unclear contracts and shifting political priorities. Should the project become commercially viable, questions of ownership, royalties and export rights could quickly become thorny. A Chinese-dominated operation may be expedient in the short term; but it could invite long-term dependency, ironically replacing one energy hegemon with another.
Nepali officials insist the partnership is balanced and transparent. The Department of Mines says future production licences will follow a separate competitive process. But given the absence of a strong legal framework for fossil-fuel extraction (and the country’s patchy record on regulatory enforcement), such assurances are best taken with a dash of gas.
Methane is neither oil nor gold. Its extraction is technically challenging, and its distribution requires big investment in pipelines, compressors and storage, among others. Unlike LPG, which can be bottled and trucked, methane must be handled as a gas: meaning urban networks and safety protocols as well as steady demand are all prerequisites. In mountainous Nepal, where even road asphalt struggles to survive the monsoon, that is no small ask.
There are the environmental complications, too. While methane burns cleaner than other fossil fuels, it is itself a potent greenhouse gas: some 80 times more damaging than CO₂ over two decades. A poorly sealed well or leaky transmission pipe could negate the climate benefits and provoke local opposition. Environmental groups have so far remained quiet. But as the project moves from survey to extraction, scrutiny is likely to grow. Nepal’s environmental legislation is often strong on paper but weak in practice, particularly when local elites stand to benefit.
Critics also point out the country’s energy future arguably lies in hydropower and renewables rather than fossil fuels. The country already produces surplus electricity during the monsoon and is expanding its solar footprint. Doubling down on gas, they argue, risks locking Nepal into an outdated development model. But such views can sound tone-deaf in places like Dailekh, where even grid access remains patchy. The politics of abundance are winning over the ethics of sustainability—for now.
The real risk, however, may not be in engineering or ecology. But in governance. The so-called resource curse—where sudden mineral wealth distorts economies, fuels corruption and erodes institutions—is well documented in developing countries. Nepal’s administrative capacity is already strained. Its judiciary moves slowly. Its civil service lacks technical depth. And its political parties are notoriously factional. In this context, a resource windfall could exacerbate elite capture rather than alleviate poverty.
Hydropower provides a cautionary tale. The nation is said to have the capacity to generate 83,000 megawatts of electricity. It currently generates less than 3,000. Large projects are mired in legal disputes, community pushback and land-acquisition delays, to name a few. If methane is to avoid the same fate, it will require a different playbook: clearer regulation, institutional oversight and perhaps a sovereign-wealth fund to manage revenues. None of these currently exist.
The discovery in Dailekh is not transformative in itself. But it is a stress test, a way of evaluating whether the country has matured enough institutionally to manage a strategic resource. It is also a rare opportunity to get it right from the start. Unlike legacy sectors that Nepal inherited from the monarchy or colonial influence, the methane sector can be purpose-built: regulated and taxed for the public good.
So far the signs are mixed. The Armed Police Force is guarding the site. The Chinese engineers are still drilling. And the Department of Mines seems both earnest and overwhelmed. If all goes well, Nepal could be producing its own fuel within a few years. If not Dailekh risks becoming another entry in Nepal’s long catalogue of “almosts”: a country rich in discoveries, but poor in delivery.
Methane may be invisible but the expectations now floating over Karnali and Kathmandu are anything but. ■