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.
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, reported AFP.
Leviathan was discovered 130 kilometers (81 miles) west of the Mediterranean port city Haifa in 2010.
It is estimated to hold 535 billion cubic meters (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 meters (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 neighbor.
Israel had previously bought gas from Egypt, but land sections of the pipeline were targeted multiple times by Sinai extremists in 2011 and 2012.
Tamar, which began production in 2013, has estimated reserves of up to 238 billion cubic meters (8.4 trillion cubic feet).
Israel's neighbor to the east, Jordan, has been purchasing gas from Tamar on a small scale for nearly three years.
Natural gas is set to replace coal as the main fuel for power generation in Israel.