This study explores the hydrothermal liquefaction (HTL) of wood chips to biocrude followed by upgrading to diluents, which are used to transport bitumen through pipelines. In this study, we considered a 2000 dry t day−1 plant capacity with two scenarios. The first scenario uses hydrogen for upgrading from the on‐site hydrogen production plant (i.e., the hydrogen production scenario) and the other relies on procuring hydrogen from an external source (i.e., the hydrogen purchase scenario). We developed a data‐intensive process model for HTL and used it to estimate plant capital costs. Project investment costs for the hydrogen production and hydrogen purchase scenarios are 559.67 and 429.13 M $, respectively. The product values (PV) of the diluent from the two scenarios are 0.98 ± 0.03 and 0.79 ± 0.03 $ L−1, respectively, at a 95% confidence interval. The sensitivity analysis shows that diluent yield and internal rate of return (IRR) have the highest impact on the PV of the diluent, followed by capital cost and biomass cost. The optimum plant size at which the cost of production is lowest is 4000 dry t day−1 for PVs of 0.82 $ L−1 and 0.68 $ L−1 for the hydrogen production and purchase scenarios, respectively. This study offers insights into the techno‐economic feasibility of producing diluents from HTL. The results of the study could help in the production of diluents for bitumen transportation for the oil sands industry and help reduce the overall greenhouse gas (GHG) footprint of the oil and gas sector. © 2017 Society of Chemical Industry and John Wiley & Sons, Ltd