Petroleum & Natural Gas Exploration in Nepal: 10 Blocks and the Dailekh Gas Discovery

Nepal currently has no commercially producing oil or gas field and imports almost all of its petroleum products (diesel, petrol, LPG and aviation fuel) from India through the Nepal Oil Corporation. Because this import bill is one of the country's largest single foreign-currency outflows, any credible domestic hydrocarbon discovery becomes major national news. That is exactly why headlines about natural gas in Dailekh, or methane under the Kathmandu Valley, recur every few months.

The scientific case for exploration is that Nepal's southern lowlands — the Terai plains and the adjoining Siwalik (Chure) hills — are the northern edge of the Indo-Gangetic sedimentary basin, which hosts producing gas and oil fields in India. Thick sedimentary sequences, surface gas and oil seeps, and mud volcanoes have long hinted at petroleum potential, but the deformed Himalayan geology also makes drilling technically difficult and expensive.

This page is a neutral, source-cited explainer covering three things people search for: the government body that runs exploration (the Petroleum Exploration Project), the 10 designated exploration blocks, and the Dailekh (Jaljale) gas discovery, plus the older Kathmandu Valley methane story. Figures are attributed to their sources and flagged where they are indicative rather than confirmed reserves.

State exploration is coordinated by the Petroleum Exploration Project (historically also called the Petroleum Exploration Promotion Project), established in 1982 (2039 BS) under the Department of Mines and Geology (DMG), which sits within the Ministry of Industry, Commerce and Supplies. Its stated aim is to advance petroleum and natural gas exploration in Nepal in a systematic, scientific manner and to promote the country's acreage to potential investors.

Since the late 1970s the Project and its partners have run aeromagnetic surveys (from 1979), seismic reflection surveys (reported at over 1,200 line-kilometres in the early 1980s), gravity and photogeological mapping, and geochemical sampling. The DMG has published coloured geological maps of all ten blocks at 1:250,000 scale and assembled a Data Sales Package of geological, geophysical, geochemical and drilling data that it markets to prospective explorers.

The Project's job is promotion and data stewardship rather than production: it licenses blocks to foreign or joint-venture companies, supervises their work, and collects data and fees. According to the DMG, petroleum-related activities have historically earned Nepal on the order of USD 2 million through data sales, surface rentals and related charges — a reminder that, to date, the sector's returns have come from paperwork, not hydrocarbons.

For licensing, the Terai and Siwalik belt is divided into 10 exploration blocks running west to east across southern Nepal. The blocks are numbered 1 to 10 and named after major towns: Dhangadhi (1), Karnali (2), Nepalgunj (3), Lumbini (4), Chitwan (5), Birgunj (6), Malangawa (7), Janakpur (8), Rajbiraj (9) and Biratnagar (10).

The DMG describes the ten blocks as covering a combined area of roughly 44,000 square kilometres, with each block on the order of several thousand square kilometres; older promotional material rounds each block to about 5,000 sq km. Treat the exact per-block figures as indicative, because published sources round them differently. Importantly, these ten numbered blocks lie in the southern plains and hills — the Dailekh gas discovery in the mid-hills of Karnali Province is a separate research programme, not one of the ten Terai licensing blocks.

The blocks are the framework through which past foreign explorers were awarded acreage, and they remain the basis for any future bidding rounds. Understanding the numbering matters because news reports often refer to activity by block name or number rather than by district.

Nepal's earlier attempts to attract international oil companies produced disappointing results. In 1985 the government signed a pact with Shell (the Netherlands) for Block 10 (Biratnagar); Shell drilled a well reported at about 3,520 metres but found it dry and abandoned the project when its contract ended in 1989. This remains one of the deepest exploration wells drilled in Nepal.

In 1998 the US-based Texana Resources Company won acreage in blocks including Nepalgunj and Chitwan but carried out only limited field and laboratory work. In 2004 the UK's Cairn Energy took several western and central blocks, and later awardees included firms from the United States and the United Arab Emirates. None delivered a commercial discovery.

Because these licensees could not show tangible exploration results, the government progressively cancelled the outstanding petroleum exploration licences, with reports placing the major cancellations in the mid-2010s (around 2014) and further cancellations in the years that followed. The upshot is that, before Dailekh, decades of on-and-off drilling had not produced a single flowing well.

The Dailekh discovery is the reason 'natural gas in Nepal' trends. Following a 2016 bilateral understanding and a February 2019 agreement (reported at around Rs 2.4 billion), the China Geological Survey undertook surface and sub-surface studies, while CNPC Xibu Drilling Engineering Company carried out exploratory drilling at Jaljale in ward 1 of Bhairavi Rural Municipality, Dailekh district, Karnali Province. Drilling began on 11 May 2023 and continued for roughly 18–19 months, reaching a depth of about 4,013 metres, with one-metre-interval core samples sent for laboratory testing.

A preliminary report in June 2025 put the find at more than 112 billion cubic metres of natural gas (methane), a figure that generated headlines about Nepal meeting its gas demand for up to 50 years. A final study submitted by the China Geological Survey to the DMG in February 2026 revised the confirmed volume down to about 80.7 billion cubic metres. Readers should note that some outlets mistakenly reported '1.12 billion' cubic metres; the government-cited figures are the 112-billion preliminary and 80.7-billion final estimates.

Nepali officials, including DMG spokespeople, have consistently framed the result as promising but not yet proven. The reported volumes are gas-in-place style estimates from a single well and geological modelling, not certified recoverable reserves. Well testing — which measures how much gas actually flows and at what quality and pressure — has not yet been completed, and a fresh Nepal–China agreement is needed to fund a second phase before any talk of commercial production.

Separately from Dailekh, the Kathmandu Valley has its own long-known methane story. A 1980 joint survey by the DMG and the Japan International Cooperation Agency (JICA) identified shallow biogenic gas at depths of roughly 20–330 metres beneath parts of Kathmandu and Lalitpur, with occurrences reported under areas such as Tripureshwor, Tinkune, Jadibuti, Imadol, Tikathali and Ekantakuna, spread over about 26 square kilometres.

The valley gas is estimated at around 317.6 million cubic metres — often described as enough to meet the needs of about 20,000 households for more than 50 years. In 1983, with UNDP and JICA support, the DMG built three wells of 500-cubic-metre capacity at Pachali, Teku, and for several years experimentally piped gas to nearby users before the trial was discontinued.

Because it is methane, the valley gas is combustible and usable as an energy source, though for cooking it is typically blended with propane and butane. The DMG has periodically floated restarting small-scale production tests at Teku. This is a shallow, urban, relatively small resource and should not be confused with the far larger, deeper Dailekh find.

If a fraction of the Dailekh gas proves recoverable, it could reduce Nepal's dependence on imported LPG and diesel, create local jobs in Karnali, and improve the trade balance. Officials have highlighted energy-security and employment hopes, and each new report revives public excitement about Nepal becoming energy self-sufficient.

The caveats are substantial. No gas has yet been produced; the headline volumes are estimates, not certified reserves; well testing, reservoir engineering, pipeline or processing infrastructure, financing and a new intergovernmental agreement all lie ahead; and the mid-hill terrain is challenging. Nepal's earlier exploration history — decades of dry wells — is a reminder that promising surveys do not always translate into production.

For readers tracking the story, the credible milestones to watch are the completion of well testing, publication of a certified reserves and feasibility assessment, and any signed second-phase agreement between Nepal and China. Until those exist, Dailekh is best described as a significant methane discovery under evaluation rather than a proven, producible gas field.