A water heater including a tank having a wall defining an interior for holding water is provided. A heat exchange assembly is positioned at least partially within the interior of the tank. The heat exchange assembly has an outer tube extending within the interior of the tank. The outer tube has a wall with an inner surface. An inner tube extends within the outer tube. The inner tube has a wall with an outer surface. A gap is defined between the outer surface of the inner tube and the inner surface of the outer tube. Heat conducting fluid is contained within the gap. The fluid facilitates the transfer of heat between the inner tube and the outer tube.