The membrane reactor is a novel technology for the production of hydrogen from natural gas. It promises economic small-scale hydrogen production, e.g. at refuelling stations and has the potential of inexpensive CO2 separation. Four configurations of the membrane reactor have been modelled with Aspen(plus) to determine its thermodynamic and economic prospects. Overall energy efficiency is 84%(HHV) without H-2 compression (78% with compression up to 482bar). The modelling results also indicate that by using a sweep gas, the membrane reactor can produce a reformer exit stream consisting mainly of CO2 and H2O (> 90%(mol)) suited for CO2 sequestration after water removal with an efficiency loss of only 1%(pt). Reforming with a 2MW membrane reactor (250 unit production volume) costs 14$/GJ(H2) including compression, which is more expensive than conventional steam reforming + compression (12$/GJ). It does, however, promise a cheap method Of CO2 separation, 14$/t CO2 captured, due to the high purity of the exit stream. The well-to-wheel chain of the membrane reactor has been compared to centralised steam reforming to assess the trade-off between production scale and the construction of a hydrogen and a CO2 distribution infrastructure. If the scale of centralised hydrogen production is below 40 MW, the trade-off could be favourable for the membrane reactor with small-scale CO2 capture (18$/GJ including H-2 storage, dispensing and CO2 sequestration for 40 MW SMR versus 19$/GJ for MR). The membrane reactor might become competitive with conventional steam reforming provided that thin membranes can be combined with high stability and a cheap manufacturing method for the membrane tubes. Thin membranes, industrial utility prices and larger production volumes (i.e. technological learning) might reduce the levelised hydrogen cost of the membrane reactor at the refuelling station to less than 14$/GJ including CO2 sequestration cost, below that of large-scale H-2 production with CO2 sequestration (similar to 15$/GJ). (c) 2006 Elsevier Ltd. All rights reserved.