Simulation studies on catalytic methanation reaction in externally cooled tubular reactor filled with monolithic catalysts were carried out using a general purpose modelling tool $gPROMS^{(R)}$. We investigated the effects of operating parameters such as gas space velocity, temperature and pressure of feeding gas on temperature distribution inside the reactor, overall CO conversion, and chemical composition of product gas. In general, performance of methanation reaction is favored under low temperature and high pressure for a wide range of their values. However, methane production becomes negligible at temperatures below 573K when the reactor temperature is not high enough to ignite methanation reaction. Capacity enhancement of the reactor by increasing gas space velocity and/or gas inlet pressure resulted no significant reduction in reactor performance and heat transfer property of catalyst.