Raw low-rank coal/water slurries, primarily due to the high inherent moisture, have such low energy densities that they cannot be economically utilized. However, hot-water drying (HWD) permanently removes the inherent moisture and some oxygen, allowing dramatic improvements in the resulting slurry energy density. This process results in the coal essentially being slurried in its own moisture and produces a liquid fuel with approximately the same heating value as the parent coal. Elevated process temperatures cause the low-rank coals to undergo both chemical and physical changes, which include decarboxylation, mild pyrolysis, dehydration, and surface modification. Tars and waxes also form and flow to the coal surface where they solidify upon cooling and plug micropore entrances. As a result, lignite and subbituminous coals acquire surface characteristics and improved coal quality, which allow the preparation and utilization of concentrated low-rank coal/water fuels. Improvement of the energy density of HWD coal/water fuels versus those prepared with the raw coal are typically >30%. Conceptual economic studies have determined the cost to process Wyoming subbituminous coal into a 60 wt % CWS to be $1.40/MMBtu (Bechtel National Inc.), $2.20/MMBtu (UNDERC) and for processing Australian brown coal $2.00/MMBtu (Davy McKee Pacific). 18 refs., 21 figs., 8 tabs.