The petroleum refining industry is a basic pillar of China’s economy. The nation’s refining capacity increased by 21.1 million tonnes in 2016. However, with the background of the world economic slowdown, China's oil refining industry has been affected the continuing slump in oil prices, slow oil demand growth and oil refining industry overcapacity. In order to pursue a good future, refineries should seek approaches for reducing internal and external costs. We use life cycle cost theory to define the boundary of the life cycle of the local refineries and define the stage of the life cycle. We have analyzed the internal and external cost structures of the life cycle. And then we constructed a set of local oil refinery life cycle cost estimation models. We took a local refinery in Shandong Province as an example to do the empirical research. Based on the identification of the key factors affecting the costs, this paper introduces a green factor to evaluate the influence of the changes of key factors on the life cycle cost. Finally, learning from the results of the typical case of a small Shandong “teapot” refinery and combined with data from actual “teapot” refineries, this paper makes a series of recommendations for cost reduction, energy conservation, improvement in efficiency in the aspect of internal cost control and external cost management.