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MOSCOW (Reuters) - Gas producer Novatek <NVTK.MM> has agreed an 284 billion rouble ($8.5 billion) deal to supply more gas to E.ON Russia <EONR.MM> in 2014-2017, the Russian subsidiary of Germany's E.ON <EONGn.DE>, E.ON Russia said on Wednesday.
The agreement allows Novatek, Russia's No.2 gas producer, to strengthen its position in the country's domestic gas market, where it has been increasing market share at the expense of other companies, such as state-owned Gazprom <GAZP.MM>.
The volumes would be supplied to E.ON Russia's Surgut power plant in Western Siberia.
A source close to the deal said that the increase would come at the expense of Surgutneftegas <SNGS.MM>, Russia's No.3 oil producer.
E.ON Russia and Surgutneftegas both declined to comment on gas supplies.
Last year, Novatek accounted for 35 percent of total E.ON Russia's gas purchases of 13.5 billion cubic meters, on a par with Surgutneftegas, according to E.ON Russia's financial report.
Rosneft <ROSN.MM> and Lukoil <LKOH.MM> also supply E.ON Russia with gas.
As of 0815 GMT, Novatek shares were up by 0.07 percent, outperforming a 0.4 percent decline of the broader Moscow stock market <.MCX>.
(Reporting by Vladimir Soldatkin and Anastasiya Lyrchikova; editing by Megan Davies)