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. Last Updated: 07/27/2016

Gazprom Buys 20% of Novatek

Gazprom, the world's largest gas company, will buy as much as 19.9 percent of rival producer Novatek amid growing demand for the fuel.

Gazprom signed a preliminary accord to buy "at market value" as much as 19.9 percent of Novatek from its main shareholders, Levit and SWGI Growth Fund, Gazprom and Novatek said in separate statements Monday. The deal is expected to be completed in August.

Novatek's London-traded shares jumped as much as 9.5 percent, to $44, following the announcement, valuing the company at $13.4 billion and a 20 percent stake at about $2.7 billion.

"Gazprom is worried about its ability to supply the domestic market in times of growing demand for gas as its output is peaking," said Ian Hague, who manages $2.1 billion at New York-based Firebird Management. "They need to put their hands on as much domestic production capacity as they can."

State-run Gazprom has 29.1 trillion cubic meters of proven gas reserves, about 16 percent of the world's total. Novatek had proven reserves of 641 billion cubic meters on Jan. 1.

Gazprom relies on exports to Europe, where it has one-quarter of the market, for profit because the government caps domestic prices to help tame inflation. Novatek, which does not export, had profit in the first quarter of 3.7 billion rubles ($137 million), 61 percent more than a year earlier.