A recently formulated density corrected quantum Boltzmann equation emphasizes the need to explicitly include pair correlations and the conversion of kinetic energy to potential energy as important effects in the kinetic theory of moderately dense gases. This paper first considers an appropriate evolution equation for the pair correlations which includes their decay via interactions with other particles in the gas. The molecular description is given of such a gas close to local thermal equilibrium, together with expressions for the associated hydrodynamic variables. Wigner functions are used to uniquely separate macroscopic and microscopic properties. An accompanying paper solves the combination of linearized Boltzmann and correlated pair equations to obtain expressions for the transport coefficients.