A method for detection and identification of polar gases and gas mixtures based on the technique of terahertz time-domain spectroscopy is presented. This relatively new technology promises to be the first portable far-infared spectrometer, providing a means for real-time spectroscopic measurements over a broad bandwidth up to several THz. The measured time-domain waveforms can be efficiently parameterized using standard tools from signal processing, including procedures developed for speech recognition applications. These are generally more efficient than conventional methods based on Fourier analysis, and are easier to implement in a real-time sensing system. Preliminary results of real-time gas mixtures analysis using a linear predictive coding algorithm are presented. A number of possible avenues for improved signal processing schemes are discussed. In particular, the utility of a wavelet-based signal analysis for tasks such as denoising is demonstrated.