We report detailed density functional theory (DFT) calculations of important mechanisms in the methanol to gasoline (MTG) process in a zeolite catalyst. Various reaction paths and energy barriers involving C-O bond cleavage and the first C-C bond formation are investigated in detail using all-electron periodic supercell calculations and recently developed geometry optimization and transition state search algorithms. We have further investigated the formation of ethanol and have identified a different mechanism than previously reported [1], a reaction where water does not play any visible role. Contrary to recent cluster calculations, we were not able to find a stable surface ylide structure. However, a stable ylide structure built into the zeolite framework was found to be possible, albeit a very high reaction barrier.