By Abhimanyu Chhetri

In the time it takes most people to read this sentence, the world will have used up about 8,000 barrels of oil (1 million liters); at 1000 barrels per second. The price of oil and gas is ever rising. International Oil companies are making huge investments around the world in search of new reservoirs. It might be surprising for some to know that Nepal has reserves of both oil and gas and foreign companies are eyeing those reserves. As of July 2012, the 10 blocks designated by the Department of Mines and Geology(DMG) for oil and gas exploration have been leased out to 4 different Oil giants.   

In the summer of 2012, there was a huge outcry about two international oil giants – Texana Resources Company of Houston, USA and Cairn Energy of UK leaving Nepal citing a “force majeure”. Force Majeure can free both parties from liability or obligation in case of an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term act of God (such as hurricane, flooding, earthquake, volcanic eruption, etc.). However, this allows the parties to only suspend their work but not cancel the contract.

In most countries oil companies are being forced out. However, in Nepal the two companies packed up and left. The two companies said they were abandoning exploration work in Nepal due to bureaucratic hurdles and lack of cooperation from the government. Both have already spent millions of dollars in Nepal on preliminary surveys and were all set for a ‘seismic operation,’ which determines whether the surveyed areas contain commercially viable quantities of oil. To date, Texana has spent US$3 million and Cairn US$2 - 10 million in the country.  The two companies were required to pay an annual fee of US$ 50,000 per ‘block’ to the Nepal government. They also have to provide bank guarantees before starting the geological survey works.

Rajendra Prasad Khanal, Head of the Petroleum Exploration Promotion Project (PEPP) under DMG, says that these companies entered Nepal during Maoist Insurgency. Texana won the bid in 1998 for 2 blocks and Cairn Energy got the license for 5 out of remaining 8 blocks in 2004. He says, “It is understandable that the companies could not work before due to the insurgency going on during those years, but now the situation has changed. Nepal is a peaceful developing country and there is no obstacle for them to carry out their investigations.”

 In fact, the team at PEPP is repeatedly requesting them to complete their work in time as per the agreement. Texana has 13 months left and Cairn energy has 7 months left of their contract period. Mr. Khanal and his team are creating a momentum to complete the necessary pre investigations and hopefully extract the crude oil in near future.  

Recently, Nepal has accorded high priority to encourage foreign investment in the country. With economic liberalization policy of the government and attractive fiscal terms available, Nepal is committed for full cooperation to international companies in facilitating petroleum exploration in Nepal.

The DOMG and PEPP have divided the Tarai and the Siwalik hills into 10 ‘exploration blocks’ of 5,000 sq km each and is trying to sell the exploration license to the International oil exploration companies . Texana won the bid for Blocks 3 (Banke) and 5 (Chitwan) and entered into an agreement with the government in December 1998. In 2004, the British company Cairn Energy received a license to explore five other blocks—Block 1 (Dhangadhi), Block 2 (Karnali), Block 4 (Lumbini), Block 6 (Birgunj) and Block 7 (Malangawa).

As of July 2012, when the two companies left the country citing “Force Majeure”, the DMG put the remaining blocks up for bid. Currently, the Block 8(Janakpur), Block 9(Rajbiraj) is owned by Emirates Associated Business Group (EABG) of UAE and the Block 10(Biratnagar) is owned by BBB Champions, which is another Houston based Oil Company. Both have bought a 4 year license to carry out exploration activities in these areas.

Mr. Khanal thinks that this is only the first step and a considerable amount of work is still to be done. The team of geologists at the DMG and PEPP are constantly providing the geological data to the foreign companies that can be indicators to the presence of oil in the region. Along with this, oil and gas have been found in India, Pakistan and Bangladesh in similar geological setting as that of the exploration blocks in Nepal. This has also further encouraged Mr. Khanal’s team to find the hidden reserves. According to Khanal, more companies are showing interest to bid for the license. The PEPP and DMG are involved in collecting more geological data as to attract more companies and facilitate the process of oil extraction for commercial use.

There is an urgency to extract these non renewable resources. Geologically, oil is formed when the dead burials mature under high temperature and pressure. After a certain period, the oil moves from the oil window to the gas window. This indicates that the reserves underground have matured for extraction a long time ago and the reserves might be lost if not extracted in time. A number of oil and natural gas seeps have been recoded in a stretch of 14km in Padukasthan, Sirsethan and Navisthan area in Dailekh and only gas seeps in Muktinath in Mustang. Methane gas deposit in Kathmandu Valley is known since long time. Feasibility study has confirmed that this gas can be used for industrial and household purpose and the reserve is sufficient to supply gas to 21,000 families for about 30 years. During preliminary study, 23 geothermal hot springs have been identified nationwide. Most of them are found to be associated with Main Central Thrust (MCT) and confined to the river banks. The temperature of the hot spring water ranges from 40o to 115oC. It can be utilized for heating, drying fruits, hot water bath to heal skin disease. According to Krishna Prasad Kafle, a Geologist retired from DMG, considerable amount of investments should be made in exploring these resources.

 The only exploration of theses precious natural resources is done in Kathmandu Valley, where Peat and Lignite is mined and used mainly in firing brick kilns. Only one well, the Shell er al Biratnagar 1, with a total depth of 3,520 m has been drilled in Nepal. In 1986, Shell and Triton bought Block no. 10 in Eastern Nepal for exploration but abandoned its project soon when it didn’t strike any oil. People associated with the project argue that Shell just didn’t drill deep enough. The situation was such that the drilling machines had to be imported from India and, due to certain trade restrictions, daily operation charges went as high as Rs 35,000 per day in the then price situation. Today, the daily operation cost is in the range of thousands of dollars. But, if considerable amount of oil is found in Nepal, it will be a boon for the Nepalese economy.