Is there already a chimney in place? The space looks very small, so consider a thin stone veneer and a small, electric fireplace for the look without the need for major construction. See Houzz photos under "electric fireplace" for ideas of style, incorporating storage.
If allowed by code, you can also do ventless gas. If the wall is an exterior wall, you can vent straight out. Your local gas company can help with placement. We used a vent free for years with no problems. If your area allows, you can use propane instead of natural gas.
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