With Balrog Fan Service, the Rings of Power Creators Wrote Themselves Into a Corner
The struggle of people who enjoy both The Rings of Power and the Tolkien's book canon is never-ending, as the showrunners often demonstrate little regard for the latter, making reconciling the series' timeline with that of the books ever more difficult.
The latest example of this is the Balrog's reveal at the end of episode seven. While it may be a cool, if decidedly unsubtle, piece of fanservice, it raises (yet another) problem with chronology – the Balrog was supposed to stay dormant for literally a whole age past the moment it is shown to be quite clearly awakened and active in the TV series.
Now, "compressing" the Middle-Earth, whether geographically or chronologically, is nothing new for both Jackson's movies and The Rings of Power, but as even in the movies Moria was an important location, having the Balrog lay waste to it thousands of years earlier creates obvious continuity problems.
There are several ways in which the series may go with the Balrog from here. The obvious, if unsatisfying, ones are just having the Balrog to be a one-off fanservice scene and presume that it goes back to sleep for thousands of years, and just ignoring the chronology problems. The more interesting approach, suggested by theory-crafters on Reddit is that the Balrog's awakening is a prelude for giving Celeborn, Galadriel's future husband (who was more or less a non-entity in the books) a bigger role to play:
"You know, I've heard some folks suggest that they might be merging Glorfindel and Celeborn's characters for this show. If they make the Mithril legend part of show-cannon, perhaps this will actually be related to bringing back Celeborfindel (as the legendary warrior) and wind up re-sealing the Balrog until years, and years later when future dwarves ignore the warnings of not to dig "where we trapped the giant fire monster" and unseal it again.Would let them have a Balrog fight scene, keep Moria alive for a while, and give Celeborn a much more interesting reason to exist, while giving a nod to Glorfindel vs. the Balrog in the Silmarillion."
(For those who only have watched the movies and the TV series and aren't familiar with Tolkien's legendarium: Glorfindel was a legendary elf warrior, famous for his battle with the strongest of Balrogs, which ended in a mutual kill.)
Fans always hold hopes that creators of big, lavishly funded TV series, set in a beloved fantasy universe, know what they are doing. Time will tell whether hopes would come true in this case.