We developed a multicomponent, multiphase, fluid and heat flow model to describe hydrate formation in marine sediments; the one- and two-dimensional model accounts for the dynamic effects of hydrate formation on salinity, temperature, pressure, and hydraulic properties. Free gas supplied from depth forms hydrate, depletes water, and elevates salinity until pore water is too saline for further hydrate formation: Salinity and hydrate concentration increase upward from the base of the regional hydrate stability zone (RHSZ) to the seafloor, and the base of the hydrate stability zone has significant topography. In fine-grained sediments, hydrate formation leads to rapid permeability reduction and capillary sealing to free gas. This traps gas and causes gas pressure to build up until it exceeds the overburden stress and drives gas through the RHSZ. Gas chimneys couple the free gas zone to the seafloor through high-salinity conduits that are maintained at the three-phase boundary by gas flow. As a result, significant amounts of gaseous methane can bypass the RHSZ, which implies a significantly smaller hydrate reservoir than previously envisioned. Hydrate within gas chimneys lies at the three-phase boundary, and thus small increases in temperature or decreases in pressure can immediately transport methane into the ocean. This type of hydrate deposit may be the most economical for producing energy because it has very high methane concentrations (S h > 70%), located near the seafloor, which lie on the three-phase boundary.