Commercial Operation Date (COD) is the date when a facility is declared to have successfully completed testing and is capable of operating commercially in accordance with the capacity, specifications, and contract requirements. Therefore, it can be understood that COD marks the starting point of primary commercial obligations, such as the seller's obligation to supply or deliver a product to the buyer. The determination and application of COD become highly sensitive when there is commercial potential that gives rise to differing views regarding the effectiveness or validity of COD under a contract. An example is the commercial arbitration dispute between Shell and Venture Global LNG in the matter of Shell NA LNG LLC v. Venture Global LNG, Inc., ICC Case No. 27797/PDP.
On
May 11, 2023, Shell commenced arbitration against VGCP alleging that VGCP
breached the SPA by failing or refusing to declare COD as of October 24, 2022,
and to thereafter commence sales to Shell under the SPA's terms. Notably,
Russia's invasion of Ukraine in March 2022 and the concomitant impact on the
LNG market had allowed VGCP to sell the Facility's pre-COD production at a
significantly higher price than that at which it was obligated to sell to Shell
once COD had been achieved, thus making the timing of COD an economically
meaningful matter for both parties. Ultimately, VGCP announced that the
Facility achieved COD on April 15, 2025. (Source: Jusmundi.com)
The
definition and mechanism for determining COD are highly critical. COD is not
merely a date, rather, it encompasses significant commercial issues.