Investment in Norway's vast oil sector will nearly halt next year, then fall in following years, ending a decade-long investment boom and putting more pressure on a slowing economy.

Capital spending will rise just 2% to around $36 billion next year and may fall 10% in 2015 before levelling out, the Norwegian Oil and Gas Association said on Thursday. Spending on new fields will taper and companies will reduce spending after a tax hike and sharp cost increases.

"After several years of investment growth on the Norwegian Continental Shelf, we are approaching a peak," said Bjoern Harald Martinsen, an economist at the lobby group. "But activity over the next few years will remain at a high and stable rate."

Next year's spending increase is larger than expected, but the decline the year after will also be larger. That will pose a particular challenge for Norway, which relies on oil for a fifth of its GDP and is already struggling with falling house prices and slowing consumption.

"There's increased uncertainty about future projects because of high costs, constraints on oil firms' cash-flow and increasing global competition between projects for investment," Swedbank First Securities economist Harald Magnus Andreassen said. "Norwegian companies are losing their competitiveness worldwide."

"Half of Norway's economic growth in 2011 and a third of it in 2012 came from rising oil investments, so after adding to growth, this will mean a substantial deduction," Andreassen said. "Two important pillars, the rise in oil investment and the increase in housing investments, have been weakened."

Better Than Feared

Record-high investment in the industry over the past several years has kept the sector operating close to capacity. That has put pressure on the cost of everything from people to rigs and equipment.

An unexpected tax hike earlier this year further eroded confidence and prompted state-controlled Statoil to delay its $15.5 billion Johan Castberg project, its biggest Arctic project.

"Even though oil prices are expected to remain at current levels the next couple of years, the costs are a major challenge," oil sector analyst Thina Saltvedt at Nordea said.

Still, the new investment forecasts are better than feared, Saltvedt said. Energy companies had been signalling bigger cutbacks.

"My impression was that the oil industry had been growing more and more concerned about the cost levels and that a lot of companies will be more restrictive on investments the next few years," she said. "In that sense, this was surprising.

The oil lobby expects cost increases to moderate in coming years. Costs are still forecast to rise an average 3.5% annually through 2018, twice Norway's overall inflation rate.

Rig rates, a large contributor to inflation, will offer relief in coming years. New vessels will arrive, keeping prices flat or pushing them lower, the group said.

Spending on the Johan Sverdrup field, Norway's biggest find in decades, is expected to total around 50 billion crowns through 2018, it added. Operated by Statoil and Lundin Petroleum, Sverdrup is expected to produce 500,000 barrels a day at its peak, easily becoming the country's largest field.