Bitumen
The term bitumen refers to a substance produced through the distillation of crude oil. Bitumen is known for its waterproofing and adhesive properties and is commonly used in the construction industry, notably for roads and highways. Production occurs through distillation, which removes lighter crude oil components like gasoline and diesel, leaving the heavier bitumen behind.
Bitumen deposits can also occur naturally at the bottom of ancient lakes, where prehistoric organisms have decayed and been subjected to heat and pressure.
Understanding Bitumen
Bitumen is a by-product of crude oil. it is composed of complex hydrocarbons and contains elements like calcium, iron, sulfur, and oxygen. The quality of material and ease of production depends on the source and type of crude oil from which it is derived. It was first used for its natural adhesive and waterproofing characteristics, helping to bind building materials together, as well as to line ship bottoms. It has also been used as a medicine.
The product has several modern uses. It’s generally meant for industrial use and is commonly found in road paving. The majority of U.S. roads are made of either bitumen or a combination of bitumen and aggregates, such as concrete. Along with being waterproof and acting as an adhesive, engineers who replace asphalt roads can reuse the material for other road projects. Bitumen is also commonly used by companies that create and manufacture roofing products. Bitumen can deform permanently under heavy loads. Continued stress on the material can result in cracking. It oxidizes, which can leave the asphalt brittle. The way its shape is affected depends on a few things, including the composition of the asphalt mixture and the ambient temperature.
Special Considerations
Bitumen Prices
Bitumen is a residual material during the process of refining crude oil into liquefied petroleum gas and gasoline. As such, bitumen prices are heavily dependent on the same set of factors that affect the price of crude. These include supply and demand and geopolitical stability in crude-producing regions of the world.
One additional 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 are 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. China also plays an important role in determining demand and setting prices for bitumen in recent times because of its heavy investment in scaling its road infrastructure.
Bitumen Futures
The world’s first bitumen futures contracts debuted on the Shanghai Futures Exchange in October 2013.1 It was aimed at operators of refineries for crude oil, dealers in bitumen, and end-users of the product. In addition to Chinese entities, bitumen futures trading was restricted to foreign banks, which means foreign investors can’t trade the commodity.2
The futures contract is monthly, priced in yuan, and entails the physical delivery of 10 metric tons of bitumen per lot upon expiration. The final product for delivery has to be certified by the exchange and should adhere to quality specifications described in the Bitumen Futures Delivery Rules.3
Example of Bitumen
Naturally-occurring bitumen can be found in the world’s oil sands deposits. Canada has the largest supplies in the world, especially in the province of Alberta. Other deposits of bituminous sands can be found in Venezuela, Russia, and the United States.
Rising oil prices in Canada made it economical to extract petroleum on a large scale. The Canadian Energy Research Institute, which is an independent charitable organization, estimates that the price of crude oil must hit $70.08 per barrel for a stand-alone bitumen mine to be profitable.5
How is Bitumen Made?
Bitumen is a by-product of crude oil. It is commonly produced through a refining process in which crude oil is reduced. It removes lighter crude oil components and leaves behind the heavier bitumen. This product has many industrial applications. It is used in the construction of roads, where it is known as asphalt, and in roofing. Bitumen also occurs naturally and can be found in Canada’s oil sands.
What Is the Primary Use of Bitumen?
Bitumen is primarily used for industrial purposes. It can be found in the construction industry where it is used to make roads, which is why it is commonly called asphalt in this application. It also has waterproofing and adhesive properties, which makes it a good product for roofing.
How Do I Invest in Bitumen?
Bitumen futures are available for trade through the Shanghai Futures Exchange. Like other trading activities, China restricted bitumen trading to domestic entities and foreign banks. But you can invest in bitumen indirectly through companies that refine crude oil and produce the product.
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