Liam Denning is a Bloomberg Gadfly columnist covering energy, mining and commodities. He previously was the editor of the Wall Street Journal's "Heard on the Street" column. Before that, he wrote for the Financial Times' Lex column. He has also worked as an investment banker and consultant.

The image of a driver slurping an iced latte while pulling a Mustang up to the drive-in window of a fast-food joint is either your idea of a capitalist apotheosis or civilization's decadent demise.

Or ... it's what flashed through your mind as you listened to Royal Dutch Shell Plc's earnings call on Thursday.

Jessica Uhl, Shell's chief financial officer, at one point talked up the oil major's marketing business:

We're the world's largest fuel retailer. Every day, Shell serves more than 30 million customers across our 43,000 sites in close to 80 countries. That is more sites than Starbucks; it is more than McDonald's.

And you thought Shell was an oil company!

Facetiousness aside, Shell has been pumping out gasoline (and cigarettes, and hot-dogs and lottery tickets) at service stations for decades. What's interesting is the emphasis this business -- along with all of Shell's downstream operations, including refining and chemicals -- is getting these days.

In part, it's just a question of following the money:

Down Is Up
Shell's downstream division has picked up some of the slack as the oil crash has trashed profits in the upstream exploration and production business
Source: Bloomberg
Note: Adjusted net income before corporate eliminations.

This is how integrated oil majors are supposed to work: When lower crude-oil prices hit profits in the upstream division, the downstream business is supposed to provide a hedge. It works up to a point: Shell's adjusted net income of $11.9 billion for the last 12 months is 45 percent higher than for 2016, but still a lot less than the roughly $20 to $30 billion levels that prevailed in the years prior to 2015.

But there's more than just the cycle at play. As I wrote here, Big Energy faces a transition from a world where consumers had few choices about their energy consumption to one where they are becoming more discerning and, increasingly, can switch between alternatives. So if Shell is to remain "resilient" or even "relevant" over the long term -- to echo CEO Ben van Beurden's words on Thursday's call -- it must shift away from focusing simply on producing as much oil and gas as possible.

Van Beurden's other comments about wanting to buy an electric car drew the most interest on the day, and they reflect the same existential issues. Encouraging higher electricity demand is a natural move for an oil major that is increasingly a major for a fuel that stands to benefit from everything getting wired up: natural gas.

Big Gas
Gas has expanded from roughly a third of Shell's output to about half in the past two decades
Source: Bloomberg

Natural gas also emits less carbon than coal. For Shell, this provides an impetus to align with measures like the Paris accord on climate change -- coal is easier to displace than oil, and gas is a primary beneficiary of that.

If oil majors are to survive low oil prices and potentially disruptive challenges to demand, then they must adopt the "lower forever" approach to managing costs that Shell espouses. And they must develop competitive advantages in actually selling energy rather than just producing it.

On that score, Shell cannot count on just being the biggest. As addicted as people may seem to gasoline, it's got nothing on caffeine and french fries:

Frappoilccino And Fries?
Shell says it earns almost $100,000 a year from each of its retail sites, but it's got a ways to go to catch up to Big Burger and Big Coffee
Source: Bloomberg, Royal Dutch Shell
Note: Implied net income per retail site. Data for McDonald's and Starbucks are for 2016. Shell data as per guidance on 2Q 2017 earnings call.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Liam Denning in New York at

To contact the editor responsible for this story:
Mark Gongloff at