Recommendations for AI in my video game

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I'll preface this by saying I'm still very new to AI in general. I'm a game developer by profession, using Unuty.

I'm working on a game where there is a computer terminal that you can interact with. I'd like to be able to offer chat with the terminal where you can ask any questions and it will answer. The AI needs to know the backstory of the game world (a few pages long). I don't mind if it can answer random questions outside of that context or not, but having some basic intelligence is more fun for players.

Ultimately, if I run a model locally it needs to be efficient. I'll have people playing the game on Steam Deck and there is the possibility of porting to Switch 2 in future also.

I considered using an API like something from OpenAI but obviously if I can run it locally that would be excellent.

Apologies again for my limited knowledge in this field but hoping some smarter people here could guide me in the right direction. Thanks!

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If anyone can share their tips and advice that would be great 🙇🏻‍♂️