A cab driver fuels up his CNG taxi on February 8, 2012 in San Francisco, California. San Francisco city officials announced today that 92 percent of San Francisco’s taxi fleet is comprised of hybrid or CNG vehicles

Chesapeake Energy has agreed to work with technology firm 3M to produce and market compressed natural gas tanks for the US transportation sector.

The second-largest natural gas producer is seeking to stimulate demand for the fuel at a time when natural gas prices have fallen to 10-year lows, forcing Chesapeake and some of its competitors to cut production and reduce the number of operating drill rigs because reserves are not economic at current market prices.

CNG tanks produced by the new partnership will reduce the current high cost of the vessels for gas-driven vehicles, and increase their performance, the companies said in a joint statement.

Using enhancements including liner advancements, barrier films and coatings, the tanks will be 10-20% lighter and have 10-20% greater capacity than currently available tanks, the companies said.

Chesapeake Energy chief executive Aubrey McClendon said increased use of natural gas as a transportation fuel will help reduce US dependence on imported oil.

“We applaud 3M for recognizing the future of natural gas as a low-cost, cleaner alternative to gasoline, and for creating innovative tank technology that will make natural gas vehicles more affordable and accessible to fleets and individual consumers nationwide,” McClendon said.

The Problem Isn’t The Price

According to Chesapeake, natural gas now sells for the gasoline equivalent of $1 to $2 a gallon, or around half the current price of retail gasoline.

Efforts to promote the use of natural gas for transportation, especially for private cars, may run into safety and capacity challenges, said Sam Jaffe, research manager at IDC Energy Insights, a global research and advisory company in Boulder, Colo.

With the space constraints of private cars, it will be difficult to make a CNG tank that’s big enough to provide the vehicle with a significant range, and such a vessel will increase the risk of explosions, Jaffe said.

“The problem isn’t the technology, it’s the fuel itself,” he said. “You are trying to put a square peg into a round hole.”

But the fuel has greater potential for trucks and buses because they have a more centralized refueling infrastructure that doesn’t require as much investment as a car-centered system would, Jaffe said.

Any significant increase in the use of CNG as a transportation fuel would also depend on developing an infrastructure of refueling stations, winning public confidence, and on natural gas staying as cheap as it is for a long time, he said.

Boosting The Demand Side

NYMEX natural gas futures hit a 10-year low of $2.23 per thousand Btu in late January because of oversupply caused by booming domestic production and slack demand during an unusually mild US winter.

Chesapeake said on Jan. 23 that it was approximately halving its U.S. rig count to 24 and reducing gas production by 1 billion cubic feet a day in response to the low market price.

The price has increased the need for producers like Chesapeake to boost demand, said Jaffe. “They can’t produce gas at this price and they need to increase demand so that the price will go up so they can get the gas out of the ground.”

Chesapeake said it will invest an initial $10 million in design and certification services and market development, and will use the new tanks for its corporate fleet. The money will come from Chesapeake NG Ventures, a unit that plans to invest $1 billion over the next 10 years in a number of programs designed to increase demand for natural gas.