The story
From fire + damp with 'damp' not in the usual sense of 'moist' but old German, modern Dutch, Danish 'damp' as steam or vapour, hence a gas liable to catch fire.
Etymology from Wiktionary, CC BY-SA 4.0.
firedamp
Today it means: A flammable gas (mostly methane) found in coal mines; forms an explosive mixture with air. Full definition →