Economic and geopolitical uncertainty vs energy variables: exploring connectedness in the LNG freight market

This paper contributes to the literature by applying quantile connectedness methodology to explore the impact of geopolitical and economic uncertainty on the volatility of LNG freight rates. Our findings justify modelling this market using econometric methodologies that depart from the classical Gaussian assumptions. First, we find asymmetric spillover effects between LNG freight rates, uncertainty, and energy variables, with the impact of uncertainty on the LNG rates becoming more intense at the tails of the distribution. Second, we find that the marginal variation in LNG freight rates after a shock is attributable to geopolitical and economic uncertainty, as the energy variables appear to absorb the marginal effects. Our results point to profound spillovers in the LNG freight market resulting from the pandemic, the war in Ukraine and government interventions to mitigate the adverse impact of these developments. These findings contribute to the LNG freight rate risk management.