NEW YORK (TheStreet) -- The beginning of the end of the slide in natural gas prices is upon us and investors should position themselves in ETFs such as First Trust ISE-Revere Natural Gas (FCG) - Get Report ahead of the turn.

Natural gas suffered a double whammy in the past two years. First, the global economic crisis crushed demand from all sources: residential, commercial, industrial and electric power.

Then, with consumption low, output increased as new discoveries and production were brought to market. The result was a price that slid and stagnated even as the U.S. and global economy recovered, pushing the price of oil up about 100% from crisis lows.

A major source of falling demand came from industrial and electric power. As this chart from the Energy Information Administration (EIA) shows, these two sources of demand were shrinking from mid-late 2007 until the end of 2009.

These two sources make up almost two-thirds of total demand. Residential and consumer demand, a combined one-third of demand, recovered earlier, and the result was higher total consumption in January than was seen in the previous two years.

Demand is just one-half of the market though. Supply has been robust enough that the increase in demand hasn't affected natural gas prices yet. That may change, however, as natural gas producers shutter wells and shift production.

In April, rig counts declined for the first time in 16 weeks. This process is part of the bottoming process and natural gas prices may continue to slide until enough production is taken off the market.

Natural gas drillers are also shifting assets into oil drilling and exploration.

Petrohawk

's

(HK)

CEO said the firm would do more oil drilling.

SandRidge

(SD) - Get Report

bid for

Arena Resources

(ARD) - Get Report

to grow its oil reserves, and even

Chesapeake Energy

(CHK) - Get Report

, the stock most investors think of when they hear natural gas, is talking about oil.

In addition to the voluntary production cuts from the industry, regulators may tighten the areas open to drillers. New York toughened watershed protections last week, closing off some areas of the Marcellus shale formation that stretches into much of the state. The EPA is also looking into the threat of water pollution and the trend in Washington at the moment would seem to favor some tightening of regulations.

All these factors point to a bottom in natural gas prices, but it doesn't mean the bottom is in. Bottoming is a process and the forces that will cause the next sustained rally in natural gas prices take time to build up. This gives investors the luxury of time in positioning themselves for the eventual upturn.

For ETF investors looking to play a bottom in natural gas,

U.S. Natural Gas

(UNG) - Get Report

is not the best choice. Fundamentally, natural gas prices may have further to fall in the near term and in the long run, I expect natural gas stocks will beat the fuel itself.

On top of that, regulatory issues are back in the spotlight as Washington turns to financial reform, and these have

caused problems for UNG before

.

The better ETF for this move is First Trust ISE-Revere Natural Gas, with the

J.P. Morgan Alerian MLP Index ETN

(AMJ) - Get Report

as a solid choice for conservative and income oriented investors. For more information on these funds, see my

Ultimate Guide to Natural Gas.

Investors also have a much more volatile play in the form of the

Jeffries TR/J CRB Wildcatters Exploration & Production Equity ETF

( WCAT), which owns small and mid-cap oil and natural gas explorers and producers.

The fund has a 0.65% expense ratio and extremely low volume that has averaged 1,500 shares per day over the past three months, in addition to having only $4 million in assets.

I warned investors of the risks in this fund before in an

article

, but I expect this fund to outperform. Recently, top 10 holding

Mariner Energy

( ME) jumped almost 50% when

Apache

(APA) - Get Report

offered to buy the firm, and this has helped WCAT beat FCG thus far in 2010, 16.5% to 10.7%

-- Written by Don Dion in Williamstown, Mass.

At the time of publication, Dion was not long any equities mentioned.

Don Dion is president and founder of

Dion Money Management

, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Mass., Dion Money Management manages assets for clients in 49 states and 11 countries. Dion is a licensed attorney in Massachusetts and Maine and has more than 25 years' experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.

Dion also is publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors his commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the U.S. and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers.