Gas hydrates pose a problem to the flow assurance programs in the oil and gas industry. This paper highlights the mechanisms of hydrate formation in natural gas pipelines. Computational Fluid Dynamics (CFD) was used to gain insight in to the mechanisms of water vapour condensation and consequent water accumulation in the lowered sections of a gas pipeline. The pipeline temperature profile, condensation of water vapour at walls, hydrate formation and hydrate slurry rheology were modelled with user defined functions (UDF) integrated into the CFD-software Fluent. It was found that the uphill sections of gas pipelines are natural sites for water accumulation and hydrate formation. It is demonstrated that CFD is a valuable tool to understand complex physical phenomena occurring in multiphase flow problems.