First he is right as to the fact Oil is the CHEAPEST, Most cost effective and easiest to use fuel (Nuclear, geothermal and hydroelectric are actually Cheaper, but basically restricted to Producing electricity). When you look at the alternative to Oil, ALL have defects. For Example Bio-Diesels inability to provide the same level of price AND supply (Supply will be restricted by the need for food, to increase bio-diesel food production will have to be cut and even if you cut food production 100% bio-Diesel is just NOT capable of supply all of the oil we use today).
Natural Gas has a similar production outlook as oil (through delayed by about 20 years) but as oil price goes through the roof people first choice for heating will be Natural Gas, thus cutting out Natural Gas to replace oil as a fuel.
Other then Bio-Diesel, or Compressed Natural Gas (or Liquefied Natural Gas i.e. LNG) the other forms of energy are not as "nice" as oil. Do to the problem of using these other forms of energy, such forms of energy are used either producing electricity (Nuclear, Active Solar, and Coal) or in very large engines (Primarily coal in Ship and Trains). In these two situations the problems of these other forms of energy are minimized for example:
Nuclear, tend to be very large operations so to minimized the cost of producing the plant. Nuclear has been used to propelled Ships (Mostly Naval Vessels but the N.S. Savannah of the 1950s was an attempt to use nuclear on a Civilian Commercial Ship). Force to be at least ship size, nuclear powered trains are possible but even in such operations what you are seeing is NOT Direct Nuclear propulsion but Nuclear Electric Generations used to power electric motors. Given that such "Nuclear" Trains would really be nothing more than moving electric Generators, the better solution would be to just convert the Trains to Electric Power and than you have the option of using any form of energy to generate the electric power needed. Please note unlike other forms of Power how much nuclear material is on the earth is unknown. It is believed Uranium is limited but you do have other forms of Nuclear power possible (and if ever found in outer space possible to be mined and shipped back to the Earth). Please note the increase costs of this method of producing electricity over time.
Solar, like bio-diesel is limited to the amount of sunlight that hits the surface of the earth. It may be possible to provide a lot of power by Solar panels, but like bio-Diesel at the cost of food production and the ecology system of the world.
Coal is the major option to Nuclear, plenty around but if present growth rates continue coal will hit its peak in about 50 years. Thus coal can delay the day of Reckoning it can not prevent it. Furthermore once oil and Natural Gas is in terminal decline greater demand for coal will occur WHILE the production of coal declines as the coal operators switch from diesel fuel to coal as their own power source.
Once you look at the alternative NONE of them provide the same connivance at the price of Oil today. Thus your Friend was right, people will want to continue to use Oil forever, the problem is when they can NO longer do so, that is where your friend is WRONG.
Now if you look at the above and some of the more pessimistic web sites on Peak Oil you can be depressed and foresee a collapse of Society. On the other hand if you do a quick study of how we got here , you find that the situation will be stressful and force people to change, but society and civilization will survive. Suburbia will die but Rural and Urban America will expand for each has an alternative means of energy that is more efficient than even bio-Diesel, that is the Horse and the Bicycle.
Now I do not see the Horse returning to Urban areas (in some numbers but not large numbers). Technology has changed since we used horses and bicycles in Depression and pre-Depression days. Wooden wheels barely survived past 1900 and the steel wheels that replaced them on wagons are still a very good wheels on wagon. Pneumatic tires are good but drop in efficiency as both the weight of the wagon drops and the speed of the wagon drop, thus for horse drawn wagons steel wheels are better than the old fashion wooded wheels (Steel wheels on Steel Rail is still the most efficient transportation combination if you ar looking at energy efficiencies, for example when the first horse drawn street cars where installed they replaced similar sized wagons, but with the Steel Wheel on Steel Rail combination one horse could pull the same weight as four horses pulling regular wagons).
All told horses and mules are the most efficient hauling combination except for Gasoline and Diesel Fueled trucks. Once oil is scarce you will see a conversion back to the horse in rural areas.
In Urban areas, the down side of horses were seen by 1900 and most cities encouraged to switch from Horse to Trucks do to the manure in the street problem. Given the manure in the street problem I do NOT see the horse making a big comeback in the cities, certain heavy hauling will be done by them but not any light hauling. Bicycles, Bicycle Trailers and hand carts will do that work in the cities. Now I see the Streetcar system system coming back as a fuel efficient method of transporting people over long distances, and like in pre-WWII days these same systems will be used to haul fright and most large store will be on the Streetcar Line which will then use handcarts and bicycle with trailers to haul things to people homes.
The above situation also assumes electricity production for inner-City Train service with an integrated LRV system in the urban areas (Through in Certain Rural areas the difference between a LRV and a train will be blurred). You have to have people move things from the smaller farms that would be required with the conversion back to the horse AND to more compact but still individual homes of the Urban areas. The horse to the Train depot, the Train to the City, from the City Station to the LRV stations and then by Bicycle to the City Dweller (and reverse for goods made in the Cities). You will see globalization die as the cost to transport will be high.
Now the above is doable but at the cost the private Automobile and Suburbia (Suburbia will die out, to far to bike to to many people for horses, most will revert to farmland through some will become compact urban areas).
The best way to see this is see how we changed from an pre-oil society to an oil society (See my paper on the Growth of Suburbia for more details it is at this thread:
http://www.democraticunderground.com/discuss/duboard.php?az=show_topic&forum=266&topic_id=203