With multiple primary and secondary energy converters (diesel engines, steam turbines, waste heat recovery (WHR) and oil-fired boilers, etc.) and extensive energy networks (steam, cooling water, exhaust gases, etc.), ships may be considered as complex energy systems. Understanding and optimizing such systems requires advanced holistic energy modeling. This modeling can be done in two ways: The simpler approach focuses on energy flows, and has already been tested, approved and presented; a new, more complicated approach, focusing on energy quality, i.e., exergy, is presented in this paper. Exergy analysis has rarely been applied to ships, and, as a general rule, the shipping industry is not familiar with this tool. This paper tries to fill this gap. We start by giving a short reminder of what exergy is and describe the principles of exergy modeling to explain what kind of results should be expected from such an analysis. We then apply these principles to the analysis of a large two-stroke diesel engine with its cooling and exhaust systems. Simulation results are then presented along with the exergy analysis. Finally, we propose solutions for energy and exergy saving which could be applied to marine engines and ships in general.