Tehran, Feb 27 (IANS): Iran is building the world's largest methanol plant which the country is touting as a rival to US shale gas.

The Kaveh mega methanol project, coming up in the Persian Gulf city of Bandar Dayyer, is 70 percent complete, deputy head of Iran's National Petrochemical Company (NPC) Mohammad Hassan Peyvandi said, Press TV reported.

The facility is intended to produce two million tons of methanol per annum or 7,000 tons per day.

Peyvandi said the first phase of the plant would start production around August, with full operation expected in 2016, which is four years behind the initial schedule.

Iran hopes to raise its methanol production capacity to 25 million tons per year in the next five years and establish itself as the biggest supplier of the product which has been tipped as alternative fuel in ships. In 2014, Japan and South Korea won the first orders to build vessels powered by methanol.

The fuel was already used in light aircraft and racing cars and its global demand is rising. Beside being a green fuel, it is cheaper and more abundant than diesel.

Peyvandi predicts that Iran's petrochemical products would challenge US shale gas for domination of the European market, while Iran's proximity to Indian and Chinese markets make the country an ideal source of energy.

Iran has proposed the establishment of a petrochemical body within OPEC in order to adjust the market.

Iran currently has a capacity to produce 60 million tons of petrochemicals, which was expected to expand to 180 million tons next year with a number of projects are coming on stream.