By Henning Gloystein
LONDON, Jan 14 (Reuters) - Risk is a major price driver in energy markets, and unexpected events such as last year's BP oil spill or Europe's cold winters, heavily impact prices and decision making.
The following are risks that may alter the shape of Europe's energy market beyond what is planned by governments and regulators.
Risk, in this scenario, is neither positively nor negatively connotated.
TECHNOLOGY
A major advance in renewable energy technology that would make some technology economically viable without subsidies could reduce fossil fuel demand more and earlier than anticipated.
Major developments in this area are modern wind turbines, with capacities up 6 megawatt (MW) or more, and which are able to produce electricity during strong storms, as well as in very light wind conditions.
In the solar sector, a technology could be developed which makes solar panels more resistant to damage by sand.
This would be a major breakthrough for the implementation of the technology in solar intensive desert regions such as North Africa and the Middle East.
Companies are developing transparent and flexible solar panels that can be attached to various surfaces, such as hand devices, automobiles or houses, much like sticky tape.
This could make vast amounts of domestic energy use independent on fossil fuels and help reduce demand and imports in Europe's wholesale energy markets.
A breakthrough technology in battery technology could boost sales of electric cars and reduce demand for oil whilst increasing demand for electricity.
A new technology that converts CO2 into something harmless would reduce the need for traded emissions certificates, or the discovery of a large-scale industrial use for sequestrated CO2 could boost demand for carbon capture and storage technology (CCS).
ECONOMY
A failing euro as the result of sovereign debt problems in some eurozone member states could freeze or halt further integration of Europe's energy markets, and the resulting volatility in Europe's currencies would severely impact revenues for European energy companies that are exposed to dollar-traded products such as oil and coal.
At the same time, a faster-than-expected rebound in Europe's economies, driven by booming Asia overseas and strong domestic performances in Germany, the Netherlands, Alpine regions and Scandinavia could increase power, gas and coal demand more than currently anticipated.
An Asian economic crisis, fuelled by rising inflation and a Chinese real-estate bubble, could lead to a depreciation in Asian coal and LNG demand, and help increase European fossil margins.
Bond markets could turn their attention to the United States, triggering a sovereign debt crisis of the world's leading reserve currency.
While this would likely cause a short-term boost in the euro and help lift European utilities' fossil power generation revenues, the ensuing economic crisis would probably cause a new international economic downturn that would hamper global demand for energy.
POLITICAL
Many regions that produce oil are politically volatile, and rising conflicts could cause spikes in gas, coal and oil prices.
Civil unrest could erupt or increase in Nigeria, gas exporting countries of Northern Africa, Venezuela, Saudi Arabia, or gas rich central Asia and coal rich Indonesia, as well as Turkey, the potentially important transit country for central Asian gas pipelines to Europe.
International conflicts could erupt between oil-rich Venezuela, and coal exporting Colombia, in the Middle East between Israel and Arab countries, or between Iran and several nations, such as Israel, the United States and/or NATO, as well as Saudi Arabia or Pakistan.
A North Korean conflict, either domestically as a result of a violent transfer of power following Kim Yong Il's retirement, or with South Korea, could disrupt Korean and Japanese LNG imports and heavily impact LNG trading.
A further rise in pirate activity in the Indian Ocean could lift freight rates. [ID:nLDE6BK0U1]
A major terrorist attack in North America or Europe could cause high volatility as a result of panicking markets.
ENVIRONMENTAL
An international CO2 consensus could lead to high carbon taxes and further reduce Europe's fossil fuel power revenues.
The negative North Atlantic Oscillation (NAO) that caused the cold 2009/2010 and current winters could be the start of a long lasting period of cold Northern European winters, as last seen during the 1950s and 1960s. [ID:nLDE69O1ZR]
A major environmental accident-an oil spill; a gas accident of a pipeline, an LNG tanker or in shale gas exploration; or a major nuclear leak-in the energy sector could disrupt supplies, halt investment in some sectors, but also boost renewable generation. (Editing by William Hardy)
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