Heat transfer is one of the largest causes of exergy destruction in modern engines. In this paper, exergy distribution modeling was used to determine the potential of reduced engine heat transfer to provide significant gains in engine efficiency. As known from prior work, of itself, reducing heat transfer creates only a small increase in efficiency-most of the exergy is redirected into the exhaust stream-requiring both mechanical and thermal recovery of the exhaust exergy. Mechanical regeneration, through turbocharging and over-expansion, can lead to efficiencies exceeding 50%. Adding thermal regeneration, through high enthalpy steam injection or a bottoming cycle, can increase the efficiency potential to approximately 60%. With implementation of both mechanical and thermal regeneration, the only remaining cause of substantial exergy destruction is the combustion process. Thus, efficiency gains significantly beyond 60% are only possible by reducing the entropy generated in the fuel conversion process.