One of the wrinkles is that bitcoin mining is an adaptive system. If mining becomes entirely unprofitable, then miners will drop out, and mining will become easier. This process will continue until equilibrium is achieved where participating miners are making only a very small amount of money based on their energy costs.

Of course, what you say about transaction fees is true too - if miners are receiving less in 'mined' bitcoins, then they are likely to demand more in fees. You can already see this happening - when I first used bitcoin, nobody charged any fees at all, relying only on the mining rewards for covering their mining costs.