NOVELTY - The method for upgrading bitumen and heavy oil, comprises separating water from a heavy oil- and/or bitumen-containing feed material having diluent to form separated water and a separated heavy oil- and/or bitumen-containing feed material, removing hydrocarbons remaining in the separated water to form de-oiled water and a bitumen mixture, distilling the de-oiled water for later conversion into steam, which is injected into an underground formation and used in a steam turbine, and inputting a portion of the feed material into a plasma arc reactor at a selected combustion temperature.    USE - The method is useful for upgrading bitumen and heavy oil using a plasma arc reactor for recovering fuel gases such as hydrogen, methane and ethane.    ADVANTAGE - The method is capable of efficiently and easily upgrading the bitumen and heavy oil without pollutants and greenhouse gas emission thus reducing the production cost and increasing the yield of the bitumen and heavy oil.    DETAILED DESCRIPTION - The method for upgrading bitumen and heavy oil, comprises separating water from a heavy oil- and/or bitumen-containing feed material having diluent to form separated water and a separated heavy oil- and/or bitumen-containing feed material, removing hydrocarbons remaining in the separated water to form de-oiled water and a bitumen mixture, distilling the de-oiled water for later conversion into steam, which is injected into an underground formation and used in a steam turbine, inputting a portion of the feed material into a plasma arc reactor at a selected combustion temperature to produce a desired composition of a paraffin-containing product, removing residual water from the bitumen mixture to form a removed water and a treated hydrocarbon mixture, combining the removed water with the separated water before distillation, removing the diluent from the treated hydrocarbon mixture to form a resulting hydrocarbon mixture, and upgrading the resulting hydrocarbon mixture to form a de-asphalted oil and a residue. The resulting hydrocarbon mixture comprises 20 wt.% of asphaltenes. The treated hydrocarbon mixture comprises most of the diluent in the bitumen mixture. The residue comprises the asphaltenes in the resulting hydrocarbon mixture, and is a portion of the heavy oil- and/or bitumen-containing feed material. The combustion temperature determines the desired composition of the paraffin-containing product and is varied to produce the paraffin product. The paraffin product cools and maintains above a boiling point of hydrogen sulfide to separate natural gas liquid products from gaseous hydrocarbons. The gaseous hydrocarbons are used to power a circular fluidized boiler to produce steam. The first portion of the gaseous hydrocarbons is injected into an underground hydrocarbon-containing deposit. The second portion of gaseous hydrocarbons is used to power a steam turbine to produce electrical power. The feed material comprises 20 wt.% of asphaltenes. The first portion of the paraffin-containing product is combusted to power a steam generating unit for outputting a first portion of steam, which is injected into an underground heavy oil and/or bitumen-containing deposit. The second portion of the steam is used to power steam turbine. An INDEPENDENT CLAIM is included for a system for upgrading bitumen and heavy oil.    DESCRIPTION OF DRAWING(S) - The diagram shows a schematic view of a flow process for upgrading bitumen and heavy oil.    Steam chamber (101)    Underground location (102)    Free-water knock-out unit (103)    Oil treating unit (104)    Upgrater unit. (106)