India on Tuesday agreed in principle to buy five million metric tonnes of liquid natural gas annually for 25 years during which Iran will offer discovered and semi-discovered gas fields for Indian investment.

At a function attended by the Indian Minister of Petroleum Ram Naik and his Iranian counterpart Bijan Namdar Zanganeh, India also agreed on a contract to buy five million tonnes of crude oil from Iran this year.

The agreed minutes covering the long-term LNG purchase and investment in Iran were signed by M S Sreenivasan, Additional Secretary in the Ministry of Petroleum and the Iranian Deputy Minister for oil Seyed Mohamed Najad Hosainain here on Tuesday.

Naik said the commercial terms for the LNG deal will be worked out later though initial purchase will be in two phases of 2.5 million tonnes each. India has a similar long term agreement with Qatar and LNG from Qatar is scheduled to reach India in January next year.

India has also agreed to offer its technical know-how to Iran for setting up CNG centers and CNG systems for using Compressed Natural Gas as automobile fuel, drawing from its experiment of Delhi where 70,000 vehicles including 10,000 buses run on CNG drastically cut pollution from automobiles, Naik said.

Naik said India, which has latest third generation refineries working at 97 per cent installed capacity will help modernise Iran's mostly first generation refineries sourced from the United States and functioning only at 65 per cent capacity.

He said a major role for Indian information technology has been built into this part of the agreement.

He said the 21st century belonged to gas just as the previous century did to oil and the 19th to coal and Iran had vast gas resources to feed an energy-hungry India. This will further strengthen the bilateral ties.

The Indian ambassador to Iran Pripuran Singh Haer, who was present at the ceremony said the co-operation in energy between the two countries was central to the political leadership's resolve to work toward a strategic relationship.

Iran has the second largest gas reserves in the world after Russia and India, which has been investing abroad in countries like Sudan, Vietnam and Russia has long-term investment plans in Iran in return for the deal to source LNG from the Persian state for an extended period.

During his three day visit, Naik was accompanied by a Highpower delegation including top officials from the Petroleum and Natural Gas ministry, ONGC, Indian Oil Corporation and Gas Authority of India.

The term contract for crude oil was signed by M S Ramachandran, Chairman, Indian Oil Corporation and Ghamini Ford, Managing Director, National Iranian Oil Company.