U.S. Big Three auto makers, eager to lessen reliance on imported oil, are heavily promoting the use of E85 ethanol, particularly for flex-fuel fullsize pickups and SUVs, as American consumers ponder the good ol’ days when gasoline sold for $2 per gallon.

But E85, a mixture of 15% gasoline and 85% ethanol derived from corn and other grains, has its drawbacks: It is difficult for consumers to find, and it contains less energy than gasoline, requiring drivers to fuel up more frequently because of decreased fuel economy.

And in recent years, E85 was almost as expensive as gasoline. At one point last year, it actually was more expensive. Over the past month, E85 was priced a few cents per gallon less than gasoline, says Daniel Cheng, vice president of automotive consulting firm A.T. Kearney Inc.

Cheng co-authored the 10th annual A.T. Kearney Townsend study, which explores many of the same fuel-economy and economic issues to be explored at this week’s Management Briefing Seminars, which begins today in Traverse City, MI.

The A.T. Kearney study finds E85 must be priced 28% below that of a gallon of regular unleaded gasoline to be economically viable. The closest E85 came to gasoline prices was 19%, in early 2005, according to the Townsend study.

“Why would people buy it?” Cheng says of E85. “It has less energy content (about 25% less) than gasoline, which means people have to fuel up more often.”

In addition, despite an ambitious push by ethanol producers and Big Three auto makers, E85 production remains lacking, making mass adoption of E85 as a primary fuel for the U.S. unlikely, Cheng says. “E85 has a capacity problem,” he says. The U.S. currently has about 100 ethanol refineries.

As crude oil prices hover at about $60 per barrel, the market at least remains hopeful for E85 as a fuel source, Cheng says.

“But if the price of oil per barrel goes down to $30 again, no one will talk about E85 anymore,” Cheng says.

Study co-author William Windle, a vice president at A.T. Kearney, says the outlook for E85 is out of the hands of the U.S. auto industry.

“Some world events will force us to decide which fuel we use,” Windle says, referring to political instability in the Middle East, which makes up the lion’s share of oil imports to the U.S. “Will it be diesel, which is popular in Europe, or will we be like Brazil, where they use a lot of E85, produced from corn and sugar cane?”

The study says “political hotspots” around the world control 45% of crude-oil production, with 11% in high-risk countries, namely Iran, Iraq, Nigeria and Sudan. Easing political unrest in these countries appears unlikely, Windle says.

“I don’t see any significant change over the next five years, except the picture getting worse,” Windle says.

Diesel’s popularity in Europe has translated into excess capacity for gasoline. Windle says the U.S. is tapping that capacity and is buying some gasoline directly from Europe.

The study says in 2005, the U.S. imported about 13% of its gasoline and gasoline components from foreign sources, up significantly from about 4% a decade earlier. Windle points to the limited number of domestic refineries as a major cause.

“The conservationists have won,” Windle says. “There still hasn’t been a new oil refinery built in the U.S. since the 1970s,” due to objections from environmental lobbyists.

The devastation of Hurricane Katrina in the Gulf of Mexico exacerbated the problem, and about 10% of refinery capacity in the region remains off line today, he says.

In addition, oil production on Alaska’s North Slope will drop by 400,000 barrels per day as BP Exploration Alaska Inc. shuts down a severely corroded section of its pipeline.

Meanwhile, hybrid-electric vehicles are gaining popularity as consumers attempt to cut back on gasoline usage.

Between 2000 and 2005, nearly 392,000 new HEVs were registered to owners in the U.S., mostly on the East Coast and West Coast, according to the A.T. Kearney study.

States that have adopted the California Air Resources Board vehicle emission regulations accounted for more than 41% of U.S. HEV sales in 2005, the study says. Twenty new HEVs are slated for the U.S. market over the next five years.

The study finds the popular Toyota Prius is the most eco-friendly, as it produces 38% fewer greenhouse gases than its comparable gasoline counterpart.

For comparison, a Volkswagen Jetta TDI turbodiesel improves greenhouse gas emissions by 25% in relation to the gasoline version of the Jetta.

But the study also finds a significant cost premium for HEVs when considering the 5-year total cost of ownership.

The Honda Civic Hybrid has the lowest 5-year cost premium ($2,025), followed by the Prius ($3,150). The Toyota Highlander Hybrid has the highest 5-year cost premium, a whopping $7,900, the study says.

tmurphy@wardsauto.com