Simulations of the natural gas steam reforming process were carried out to investigate the effect of the steam/carbon (S/C) ratio at the steam reformer and the O-2/CO ratio at the CO preferential oxidation removal reactor on the thermal efficiency of a natural gas fuel processor in a residential Polymer Electrolyte Fuel Cell (PEFC) system. The thermal efficiency shows a maximum at a certain S/C ratio. The S/C ratio giving the maximum efficiency decreases as the O-2/CO ratio decreases. The effect of the methanation of CO, a side reaction of CO preferential oxidation, on the thermal efficiency was also investigated. Moreover, the CO methanation removal process was compared with the CO oxidation removal process in the PEFC system.