City of Newcastle chief executive officer Jeremy Bath says Tuesday's Wickham warehouse fire highlights why the adjacent fuel depot should be moved.
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The spectacular and destructive inferno in the four-storey Annie Street wool stores threatened to ignite the Ampol terminal.
Fire and Rescue NSW said on Wednesday that an inbuilt sprinkler "deluge system" had helped protect the Ampol tanks, which were only 30 metres from the blaze.
Chief Superintendent Terry Farley said it would have been "catastrophic" if the fire had spread to the tanks.
"There's millions of litres of fuel on site there. It contains the main diesel line that supplies the city of Newcastle," he said.
Planning authorities rejected a huge residential redevelopment of the wool stores in 2020 due to their proximity to the depot.
City of Newcastle's submission this week to the NSW government's Draft Hunter Regional Plan 2041 points out "urban densification in Wickham is constrained by extensive mine subsidence and the presence of incompatible industrial infrastructure (fuel storage and pipelines)".
The government's Greater Newcastle Metropolitan Plan 2036 says the council should "align local plans" to "plan for relocation of bulk fuels to the Mayfield Port Precinct".
The government has shown little appetite for resolving the issue, which would require a significant outlay from the public purse.
Mr Bath said on Wednesday that the fire was a "very visible reminder of the unsuitability of the fuel depot in what is increasingly becoming a very built-up residential area that is walking distance to the Newcastle CBD".
"This is the challenge for 200-year-old cities like Newcastle ... the planning decisions of 100 years ago," he said. "Planning has to be agile. We have to be willing to change and adapt those decisions and critical pieces of infrastructure as the city changes.
"Wickham has to be the greatest example of how the city has changed just over the last decade alone."
Neither the council nor the government has investigated how much it would cost to move the terminal.
The depot is fed by a pipeline from Sydney. It also stores jet fuel and ethanol, though neither of these tanks are near the boundary with the wool stores. The large tank closest to the burnt-out buildings contains diesel.
Consultants Arriscar prepared a risk assessment for the council two years ago on the wool stores redevelopment.
It found the fatality risk for residents of the development from a fuel vapour cloud explosion exceeded safety guidelines.
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Greens councillor John Mackenzie, who sat on the Hunter Central Coast Regional Planning Panel when it rejected the Annie Street proposal, said the conflict between the terminal and Wickham's residential areas could be resolved only with "strategic, state-level intervention".
"It can't be resolved at council or DA level," he said.
"The terminal is not at all compatible with our plans for Wickham's urban renewal.
"That land use was perfectly acceptable in the past, but it now constitutes a hazard in the new urban environment."
He said Ampol had "no incentive" to move and might do so only after "careful negotiations" from the government.
FRNSW Acting Superintendent Mat Sigmund said the tank farm's firefighting measures had worked as intended.
"Even though there's a lot of danger associated with tank farms like this, there's a lot of things put in place to protect them," he said.
"Those firefighting systems that were installed in the tank operated.
"On-site staff kicked them off and firefighters as well used them during the firefighting operations."
The four-storey walls of the wool stores are in danger of falling outwards, but FRNSW said the fuel tanks were outside the "collapse zone".
Both affected buildings, but not the similar wool store on the corner of Annie and Milford streets, are likely to be demolished.