We simulate methane hydrate formation with multiphase flow and free gas within the regional hydrate stability zone (RHSZ). We find that hydrate distribution and fracture behavior are largely determined by the phase of the methane supply. We allow free gas to enter the RHSZ when porewater salinity increases to the value required for three-phase equilibrium. Fractures nucleate when the excess pore pressure exceeds the vertical hydrostatic effective stress. At Hydrate Ridge, where methane supply is dominantly free gas, hydrate saturation increases upwards and fractures nucleate high within the RHSZ, eventually allowing gas to vent to the seafloor. At Blake Ridge, where methane supply is dominantly in the dissolved phase, hydrate saturation is greatest at the base of the RHSZ; fractures nucleate here and in some cases could propagate through the RHSZ, allowing methane-charged water to vent to the seafloor.