What Is Bitumen?

Bitumen, also known as asphalt in the United States, is a substance produced through the distillation of crude oil that is known for its waterproofing and adhesive properties. Bitumen production through distillation removes lighter crude oil components, such as gasoline and diesel, leaving the “heavier” bitumen behind. The producer often refines it several times to improve its grade.

Bitumen can also occur in nature: Deposits of naturally occurring bitumen form at the bottom of ancient lakes, where prehistoric organisms have since decayed and have been subjected to heat and pressure.

Key Takeaways

  • Bitumen, a substance known for its waterproofing and adhesive properties, can occur naturally or be formed through the distillation of crude oil.
  • It is composed of complex hydrocarbons and contains elements such as calcium, iron, sulfur, and hydrogen.
  • Bitumen prices are determined by the state of the global economy and supply and demand for crude oil.
  • The world's first bitumen futures contracts debuted on the Shanghai Futures Exchange in October 2013.

Understanding Bitumen

Bitumen is composed of complex hydrocarbons and contains elements such as calcium, iron, sulfur, and oxygen. The quality of material and ease of production depends on the source and type of crude oil it is derived from.

Bitumen is generally for industry use. The substance was first used for its natural adhesive and waterproofing characteristics, helping to bind building materials together, as well as to line the bottoms of ships. It has also been used in the past as a medicine.

Ancient civilizations traded the material and Herodotus, a fifth-century BC Greek historian, claimed that the walls of ancient Babylon contained bitumen.

Nowadays, the material is used most often in road paving. The majority of U.S. roads are made of either bitumen or a combination of bitumen and aggregates, such as concrete. A key benefit, other than its adhesive and waterproofing qualities, is that engineers replacing asphalt roads can reuse the material on other road projects. Bitumen is also commonly used by manufacturers in the creation of roofing products. 

Under heavy loads, bitumen can deform permanently, depending on the composition of the asphalt mixture, the ambient temperature, and the amount of stress placed on the material. Bitumen oxidizes, which can leave the asphalt brittle and result in it cracking. 

Naturally Occurring Bitumen

Bitumen is also a term used to refer to oil sands, or partially consolidated sandstone containing a naturally occurring mixture of sand, clay, and water, saturated with a dense and extremely viscous form of petroleum.

Bituminous sands are extremely abundant in Canada, especially in the province of Alberta, where rising oil prices have made it economical to extract petroleum from these sands on a large scale. The Canadian Energy Research Institute (CERI) estimates that the price of crude oil must hit $70.08 per barrel for a stand-alone bitumen mine to be profitable. 

Bitumen Prices

Bitumen is a residual material during the process of refining crude oil into liquefied petroleum gas (LPG) and gasoline. As such, bitumen prices are heavily dependent on the same set of factors that affect crude prices. These include supply and demand for crude and geopolitical stability in crude-producing regions of the world.

An added factor that influences bitumen prices is the price spread between heavy and light crude. Bitumen is produced as a byproduct during the distillation process for heavy crude; as such, refiner decisions to process heavy versus light crude plays is critical for bitumen prices.

The U.S. government is the largest customer for asphalt produced in the country. Not surprisingly, that means economic conditions have a spillover effect on bitumen prices. For example, higher demand for asphalt for roads during an economic boom can result in increased prices. Because it has invested heavily in scaling its road infrastructure, China, too, has played an important role in determining demand and setting prices for bitumen in recent times.

Bitumen Futures

The world's first Bitumen futures contracts debuted on the Shanghai Futures Exchange in October 2013, aimed at operators of refineries for crude oil, dealers in bitumen, and end-users of the product.

The futures contract is monthly and entails physical delivery of 10 tons of bitumen per lot upon expiration. The final product for delivery has to be certified by the Shanghai Futures Exchange and should adhere to quality specifications described in the Bitumen Futures Delivery Rules.