Israel's offshore Leviathan field started pumping gas on Tuesday in what the operating consortium called "a historic turning point in the history of the Israeli economy."
A joint statement from partners Noble Energy, Delek Drilling, and Ratio said that the start of production was expected to lead to an immediate reduction in domestic electricity prices and the start of exports.
"For the first time in its history, Israel to become a significant natural gas exporter," it said.
On December 17, Israeli Energy Minister Yuval Steinitz announced approval of sales to Egypt from Leviathan and the smaller Tamar field.
A spokesman for Israeli partner Delek said then that deliveries to Egypt were expected to begin on January 1.
Leviathan was discovered 130 kilometres (81 miles) west of the Mediterranean port city Haifa in 2010.
It is estimated to hold 535 billion cubic metres (18.9 trillion cubic feet) of natural gas, along with 34.1 million barrels of condensate.
Delek and US-based Noble struck a $15 billion 10-year deal last year with Egypt's Dolphinus to supply 64 billion cubic metres (2.26 trillion cubic feet).
It will be the first time Egypt, which in 1979 became the first Arab country to sign a peace accord with Israel, imports gas from its neighbour.
Israel had previously bought gas from Egypt, but land sections of the pipeline were targeted multiple times by Sinai jihadists in 2011 and 2012.
Tamar, which began production in 2013, has estimated reserves of up to 238 billion cubic metres (8.4 trillion cubic feet).
Israel's neighbour to the east, Jordan, has been purchasing gas from Tamar on a small scale for nearly three years.
Besides bringing energy independence, Israel hopes its gas reserves will enable it to strengthen strategic ties in the region and help forge new ones, with an eye on the European market.
Natural gas is set to replace coal as the the main fuel for power generation in Israel.
Critics note that while less polluting than coal, gas is still far from being a clean source of energy.
There have been public fears that the start of production from Leviathan, in which gas flows to a processing platform 10 kilometres offshore, could bring harmful emissions.
Israel's environmental protection ministry has sought to calm residents and has set up monitoring stations in communities along the northern coast to check for any spike in pollution.
Nevertheless, Israeli public radio reported that some residents had evacuated their homes until results of the air testing are verified.
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