We show with a two‐dimensional multiphase flow and multicomponent transport model that free gas flow is a viable mechanism to form concentrated methane hydrate in meter‐scale, dipping sandstones far above the base of the hydrate stability zone (BHSZ). In this model, gas preferentially flows updip along the top of sandstone due to buoyancy. This drives hydrate formation, increasing the local salinity to the stability limit and developing three‐phase (gas, liquid, and hydrate) equilibrium above the BHSZ. With time, the gas and the hydrate solidification front (HSF) advance together updip. Behind the HSF, hydrate continues to form as the elevated salinity diffuses away. High hydrate saturations reduce the sediment permeability significantly. As a result, as the gas and HSF move updip, they are also pushed perpendicularly from the top to the base of the sandstone. The hydrate system ultimately self‐seals itself due to reduced permeability across the entire thickness of the sandstone. Gas starts to retreat downdip and accumulates below the BHSZ. With this model high hydrate saturations form far above the BHSZ at high methane supply rates while hydrate is concentrated at the BHSZ or no hydrate forms at low methane supply rates. This study provides further insights into hydrate formation by free gas flow, which can be used to design the best strategies for economic and environmental production of methane from hydrate reservoirs.