I'm hoping a resident atmospheric scientist and/or geologist will show up with answers. There's probably a very good explanation for the (electrical?) bolt of light that he saw at first and the green color of the night sky, and I'd bet almost anything that both have to do with submarine volcanic eruptions.
I think the answers about it being an underwater lava formation sound reasonable. If it were in/around a cloud, and maybe a bit more transient, I'd be tempted to say it was a red sprite: http://en.wikipedia.org/wiki/Sprite_(lightning)
Sprites/elves are my favorite atmospheric effect :)
