Understanding energy economic models

Understanding Energy Economic Models

At first glance, energy economic models can appear deceptively simple. They often revolve around a few core inputs:

• Production
• Pricing
• Revenue
• Capital Expenditure (Capex)
• Operating Expenditure (Opex)

The real challenge, however, lies not in the structure of the model but in the quality and realism of the inputs. Even the most elegant model will produce misleading results if the assumptions behind it are flawed.

The Challenges with Economic Models

While the framework of an energy economic model may be straightforward, several areas can introduce significant complexity:

• Commodity Price Forecasting
  Oil and gas pricing assumptions are notoriously sensitive. Small changes in price forecasts can have large impacts on project viability and investment decisions.
• Tax and Regulatory Regimes
  Fiscal terms vary widely across jurisdictions. From royalty-based systems to Production Sharing Contracts (PSCs), understanding how these regimes affect cash flow and profitability is critical.
• Production Forecasting
  Estimating future production involves geological, engineering, and commercial uncertainties. Getting it wrong can skew subsequent calculations in the model.

Our Economic Models Consulting Experience

At RISC Advisory, we’ve built and reviewed economic models for a wide range of clients and energy projects. This breadth of experience gives us a strong foundation for assessing whether input assumptions are reasonable.

We have advised on both the industry and government sides of regulation, helping clients navigate fiscal frameworks and working directly with governments to design PSC terms and model sensitivities. Our economic models ensure agreements are both investor-friendly and aligned with national interests.

We regularly assist clients with:

• Product pricing, especially in oil and gas, using market data, regional dynamics, and long-term trends.
• Fiscal regime analysis, with experience in a wide range of jurisdictions from royalty and tax systems in the UK and Australia to PSCs across Africa, the Middle East, and Southeast Asia.
• Production and cost forecasting, which is a core part of our consulting business. Our expertise is trusted by clients across the industry and forms the basis for many of the models we build.

Beyond oil and gas, our expertise extends to emerging energy sectors, including hydrogen. As the energy transition progresses, we’re helping clients and policymakers understand the economics of new technologies and business models.

Why Work With an Energy Economic Models Consultant?

Whether you’re a developer, investor, or policymaker, having a consultant who understands the nuances of energy economic models, and the assumptions behind them, can make all the difference.

With deep experience across jurisdictions, technologies, and fiscal regimes, RISC Advisory brings clarity and rigour to energy economic modelling.